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Warning over cost of pension changes


The cost of automatically enrolling employees into a pension scheme could prove to be ‘extortionate’ for many small firms, a leading business group has warned.


The Government has estimated that the changes will cost micro firms with up to four employees £46 per person in administration.


However, the Federation of Small Businesses (FSB) claims that this is a ‘gross underestimation’ of the true cost. It said the changes could cost the average small firm – those with four employees earning an average salary of £25,000 – at least an extra £2,550 per year in administration and pension costs.


From 2012 employers will be required to automatically enrol staff into a pension scheme and business owners must contribute a minimum of 3% of the member’s salary.


Where the employer does not provide such a scheme, employees must be enrolled automatically into the new National Employment Savings Trust (Nest).


Mike Cherry, FSB Policy Chairman, said: ‘It is vital that everyone is able to save for their future but the automatic enrolment scheme is going to cost the smallest businesses dear. While Government has put measures in place to make the enrolment process easier for micro firms, it is going to cost them at least an extra £2,550 a year.


‘The true administrative costs, however, are unknown and could be extortionate,’ he added. ‘We are calling on the Government to publish a proper impact assessment immediately to shed the true light on just how much these changes will cost small businesses.’ 

The changes will begin to take effect in October 2012, with the largest employers joining first and the smallest joining by September 2016 and contributions from staff and employers will also be phased in.