Changes to the way people fund their pension pots are in full swing, but what will these new measures mean for small business owners?
As the phasing in of the workplace pension scheme gathers pace, many experts are now beginning to wonder whether or not the auto-enrolment that began in 2012 is good news for smaller businesses. Since its introduction over 5.4 million people have been put into workplace pension schemes, and the move is set to complete in 2018.
Britain’s larger employers were the first to bring the changes into play as it was recognised that these companies have the greatest existing knowledge and experience of pensions. 58,000 employers have already made the transition, but a further 1.8 million smaller business owners still need to bring in the auto-enrolment of workers before the looming 2018 deadline. Currently, businesses with 50 employees and under are now beginning to make the necessary changes.
It is calculated that around half of the outstanding 1.8 million will be employers with only one or two workers on their books. Even those who employ a carer or a nanny, for example, will need to register for auto-enrolment.
Many analysts have raised concerns over these types of employers being able to cope with the demands of dealing with pension programmes as many will have little to no experience in the field. The scheme states that anyone who earns over £10k per year, is over 22 years of age, and under the state’s pensionable age must be placed into a workplace pension scheme.
Once the deadline has passed, it is expected that nine million people will be enrolled in a scheme that will be new to them or one that is helping them to save more towards their future. This volume of employers will undoubtedly cause pressures, but the slow phase in over six years will go a long way to alleviate much of the burden.
Fewer Opt Outs Shows Concerns May Be Unfounded
When the announcement for auto-enrolment was first made, many analysts forecasted that the amount of workers opting out of the scheme would be higher than one in four. However, the true figure is currently sitting a lot lower than that, with only around eight to 14% of people choosing to take the decision to opt out.
The Department of Work and Pensions had also originally set aside £1.1 billion to put the scheme into place, but they revised that figure downward earlier this year to just £1 billion, instilling further confidence that the scheme is working and on track.
So, Are They Good For Small Business?
Well, only time will tell, but with the help of a workplace pension specialist, small businesses could see some surprising benefits come their way as a result of the scheme. Getting the right pensions in place for your workers will show them that you care about their future and that their service is valued, both of which are good for productivity and morale.
The other advantages to adopting a workplace pension scheme can be financial. Tax relief for business owners can be significant under the new proposals, and income, corporation, and capital gains tax may all be eligible for relief when you switch over to a workplace pension scheme for your employees.
So, while the initial upheaval may seem more trouble than it is worth, the new workplace pension scheme initiative may actually turn out to be good news for small businesses providing they seek out professional advice during transition.
Gary Keeley founded The Workplace Pension Consultancy, which provides auto-enrolment advice for businesses that are setting up staff pension plans.