Micro Firms should be Exempt from Pension Reform Timebomb

All micro firms (small businesses with 10 employees or fewer) should be exempt from the automatic enrolment pension scheme due to come into force in 2012, the Federation of Small Businesses (FSB) said today.

The FSB is calling for all micro businesses to be exempt from automatically enrolling their staff into a pension scheme to remove the regulatory and financial burden on these businesses.

Responding to the consultation, Government review of automatic enrolment, the FSB warns that the cost and time spent on administrative work will damage micro firms and that the pension schemes set up by Government do not meet the needs of micro firms.

The proposed changes are also very complicated for small businesses to put in place, and the FSB is concerned that small firms do not have the expertise they need to choose a pension scheme for their staff – FSB research shows that seven in 10 business owners do not feel confident in choosing a pension scheme for their staff.

For small and medium sized businesses, the FSB is instead calling for a default scheme to be set up in which everyone who is not currently saving should be enrolled. It should be based on the following principles to:

  • Deliver to all employees and the self-employed the opportunity to save for a pension at an annual charge of 0.3 per cent or less.
  • Use a national payment collection scheme, such as PAYE, to decrease the administrative burden on small businesses.
  • Provide members with the option of investment in very low cost funds.
  • Keep contribution rates under constant review to identify whether changes are needed to achieve objectives.

The FSB is also extremely worried that the majority of small businesses and their employees are unaware that the country’s pension scheme will change in only two years time, and is calling on the Government to raise awareness of the default pension scheme to ensure that this ticking time bomb doesn’t hit small firms without warning.

Mike Cherry, Policy Chairman, Federation of Small Businesses, said:

"The FSB welcomes initiatives to help people save for their future in a pension but we are still concerned the new automatic enrolment pension scheme is going to be an administrative headache for small firms – particularly micro firms – and will cost them in time and money.

"We know that small firms do not feel confident in choosing a pension scheme because of its complicated nature and we are thoroughly disappointed that five years on from the original proposals, the pensions industry has yet to come up with an efficient system to cater for micro firms. The FSB is calling on the Government to make micro firms exempt from the automatic enrolment scheme and improve proposals for small firms."

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