All SMEs Must Contribute to Pensions by 2016

All small businessess will be obliged to enrol their staff in a pension scheme from 2016, the Government has announced, following the end of an independent consultation.

The decision means that for the first time employers will have to make pensions contributions to eligible workers. Large businesses will be obliged to enrol staff in a pension scheme automatically by October 2012, medium firms (50 to 1,249 employees) by July 2014 and small firms (fewer than 50 employees) by February 2016. Firms that are formed after 2012 will not have to comply until September 2016.

The reforms mean that employers will have to make compulsory minimum pension contributions for all workers aged over 22 and earning at least £5,035 a year. Businesses can either offer a company pension scheme or enrol their staff into the new National Employment Savings Trust (NEST) set up by the Government. However, workers can choose to opt out.

In addition, employers will not have to enrol employees until they have been working at the business for 12 weeks, unless the employee opts in during that time.

“For the first time, employers will have to make pension contributions for eligible workers from 2012, ending decades of decline of membership in workplace pension schemes.”

said a statement from the Department for Work and Pensions (DWP).

Federation of Small Businesses (FSB) policy chairman, Mike Cherry, said he was disappointed that the Government did not exempt micro-firms from automatic enrolment:

“We are severely disappointed the Government has not listened to the needs of the UK’s micro-firms and has not made them exempt from automatic enrolment into pensions, which will cost employers time and money.”

“We know that small firms do not feel confident in choosing a pension scheme because of its complicated nature, so we’re pleased that the Government has put in steps, such as the waiting period to make the administrative burden slightly easier.”

A DWP spokeswoman said that NEST has been set up specifically to make the system straightforward for smaller employers. It offers support to comply with the regulations, online tools and guidance, and ensures there is no continuing administration for them after the employee leaves. It also aims to fill the gap of available pension products for firms with only a few employees.

Employers will be obliged to contribute a minimum of one per cent of the employee’s salary. By October 2017, employers will have to contribute at least three per cent.

For more information on the pension reforms, visit the Pensions Regulator website.

All SMEs Must Contribute to Pensions by 2016

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