THOUSANDS of small firms have been warned they could face fines of £500 a day if they fail to meet their obligations under workplace pension scheme rules.
From today, companies with fewer than 30 employees will start to be phased into the government’s auto-enrolment scheme, which was set up amid fears that people are not putting aside enough money for their old age.
Not all providers will accept all employersMorten Nilsson, Now Pensions
An estimated 14,000 small businesses will be reaching their staging dates this month, with tens of thousands more coming on board over the next two years, according to the Pensions Regulator.
However, research by provider Now Pensions has revealed that 27 per cent of firms that are yet to stage have not given any thought about how they will arrange for a company to run a workplace pension for their staff.
Chief executive Morten Nilsson said: “Auto-enrolment is fast becoming a reality for thousands of firms across the country and there really is nowhere left to hide. Although it’s tempting to put it off, auto-enrolment is complex and the longer you leave yourself to plan, the easier it will be.”
Auto-enrolment started in autumn 2012, with the largest companies – which tend to have the most experience of pensions and explaining their benefits to workers – joining up first, followed by medium-sized companies.
More than five million employees have already been placed into workplace pensions and eventually as many as 1.3 million employers will have automatically enrolled up to 10 million staff.
The Pensions Regulator said that so far, escalating penalties have only been used on a handful of occasions.
But Now Pensions said almost 350,000 businesses are still unprepared for their responsibilities, which could trigger daily fines totalling £173m in the worst-case scenario. Nilsson said: “While most employers are confident that pension providers will be happy to accept their business, the reality is that not all providers will be willing to accept all employers and all employees on equal terms.
“If you are planning to rely on your existing provider, talk to them early to check they are willing to help.” Under auto-enrolment, a percentage of the employee’s pay is automatically put into a pension. The employer also contributes, with government contributions also being made through tax relief.
Employers’ minimum contribution rates are being increased in stages. At present, they must contribute 1 per cent of an employee’s qualifying earnings, but from October 2017 this will increase to 2 per cent and the following year it will rise to 3 per cent.
The Pensions Regulator has said that, ideally, employers should allow up to 12 months to prepare for auto-enrolment.
• Almost two-thirds of British workers have little knowledge about recent changes to retirement rules that allow those aged over 55 to take their entire pension pot as a cash lump sum, according to a survey by Towers Watson.
The risk-management firm also found that workers are saving an average of £1,640 less of their salary each year than they think they should.
Fiona Matthews, managing director of the group’s LifeSight arm, said: “This information deficit has the potential to store up major problems in the future, especially as our ageing population means there will be 15.5 million pensioners in the UK by 2030.”