Small firms should be exempt from pension proposals

16 August 2010

The very smallest employers should be exempt from the automatic enrolment pension scheme that is due to come into effect in 2012.

The Federation of Small Businesses (FSB) has argued that the plans, which would see all employees not already members of a workplace pension joining the new scheme on a phased basis, will impose regulatory and financial burdens on small firms.

The FSB warned that the cost and time spent on administrative work will damage micro businesses (those with 10 employees or less).

The business group also claimed that the proposed changes are too complicated for small firms to set up.

In the case of SMES, the FSB called for a default scheme in which everyone who is not currently saving should be enrolled.

The scheme, the FSB said, should offer 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; and keep contribution rates under constant review to identify whether changes are needed to achieve objectives. 

Mike Cherry, policy chairman of the FSB, commented: "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."