Chaos warning over new rules for pensions

BUSINESS leaders are fearing administrative chaos over the introduction of new pensions rules forcing even the smallest employers to offer enrolment in a scheme.

Industry groups have raised concerns as to whether the Office of the Pensions Regulator will be adequately staffed to deal with the surge in its workload from the controversial rules, which small firms warn will lead to job losses and, in the worst cases, closures.

The regulator currently oversees schemes across about 300,000 companies but this will rise to some 1.1 million after the rules come into full effect in 2017.

The Pensions Regulator is in the process of appointing an external partner to help handle the influx but, with public spending cuts looming, it has received no promise that internal staff numbers will rise as well. The Office of the Pensions Regulator employs about 330 full and part-time staff at this time.

Malcolm Small, senior pensions adviser to the Institute of Directors, said the policing of the roughly 800,000 firms across the UK employing five people or less would prove a particular burden for the regulator.

"How will they keep track on auto-enrolment, payments and so forth for these hundreds of thousands of micro-businesses? It will be a mammoth task," he said.

The decision to include so-called "micro firms" with fewer than ten employees in the National Employment Savings Trust will be the tipping point for many firms, business groups have warned, despite government claims that it will amount to less than 1 per cent of the current cost of employment. For SMEs struggling through a lingering downturn, even such relatively modest sums will prove too much, according to experts.

Colin Borland of the Federation of Small Businesses in Scotland said: "We know that for a lot of small businesses, the cupboard is bare. There is not a huge amount of slack out there."

Borland warned companies might choose to put recruitment plans on hold, or could pass on the cost to customers. In the most serious cases, staff could be shed.

Alan Collins, head of corporate advisory services at consultants Spence & Partners, said: "It is not the cost of the contributions themselves that will be particularly burdensome, but rather the cost of compliance, particularly for micro-businesses.

"The potential administrative burden on small companies is likely to be significant, to the extent that it is financially prohibitive for them to participate. The set-up costs, even for a very simple scheme, could be the equivalent of one member of staff."

Asked whether this could drive companies out of business, Collins added: "If a firm is struggling and simply can't find that set-up cost, plus the percentage contributions, then it could be a tipping point."