Workplace Pension Reform Burden for SMEs
“Completing the Picture” consultation is complex and detailed, says accountancy body.
Small and Medium Sized Enterprise (SMEs) in the UK will face significant increases in costs and administration because of new workplace pensions rules, says ACCA (the Association of Chartered Certified Accountants) today in its official response to the Department for Work and Pensions’ (DWP) consultation called Workplace Pension Reforms: Completing the Picture (878k PDF)
Major pension reforms are due to be introduced in 2012, as legislated for in the Pensions Act 2008. The DWP’s consultation has sought views on the timings and detail of these reforms.
ACCA asserts in its response that smaller businesses must have time to take on board the changes to the pensions regime, and the DWP needs to look at ways of reducing burdens on employers generally.
The rules on automatic re-enrolment and employer registration are among the areas where ACCA believes there is scope for a further reduction of burdens.
John Davies, head of business law at ACCA, says:
“This was a long consultation document, containing a great many policy proposals and detailed drafting material. While efforts have been made to reduce bureaucracy, ACCA is concerned that small businesses in particular will still face substantial burdens. However, staggering the pensions reforms for SMEs between 2012 and 2016 is a sensible idea and will enable SMEs to learn lessons from the experience of larger firms.”
But there is a danger within the proposals to phase in minimum contributions, with employers – according to these proposals – being entitled to pay a pension contribution of only 1% of a member’s earnings during the first transitional period. A knock-on effect of this is that employers could downgrade the quality of their existing workplace schemes because proposals would allow for them to rearrange their current contribution practices to the minimum required by law.
John Davies adds:
“Self-certification proposals by employers are also unclear. The rules need to provide a reasonable balance between safeguarding the rights of pension scheme members and minimising the bureaucratic burden on the employer. While the aim should be to avoid individual shortfalls, and to ensure that wherever shortfalls are identified they are made up, employers should be entitled to adopt proportionate measures to carry out checks on whether the correct amount of contributions has been paid over to the scheme.”
ACCA says that the new regulations and the accompanying guidance need to be clear that employers are entitled, within reasonable limits, to adopt a sampling approach to this process.
John Davies concludes:
“It remains to be seen whether the arrangements will transform pensions provision in the UK. The government estimates that 5 – 9 million people will be newly participating, or saving more, in workplace pensions as a result of the reforms.
“But we are sceptical about claims that the new pension arrangements will persuade so many people who do not currently save for a supplementary pension to do so. We estimate that the number of employees opting out of the new arrangements will be substantially in excess of the official estimates.”