Two-thirds of small firms do not offer pensions05th January 2011
Two-thirds of small companies do not currently provide a pension scheme for their staff, research has indicated.
Around 96% of firms employing 250 or less people that do not have a pension scheme said they were put off offering one because of the costs involved, according to the Association of Consulting Actuaries.
But new regulations mean that between 2014 and 2016, the sector will have to begin automatically enrolling staff into a pension scheme, although individuals will retain the right to opt out.
By October 2017, workers will have to contribute at least 4% of their pay to a scheme, with companies paying in 3% and the Government topping this up with 1%.
However, 35% of smaller firms said they expected their employees to opt out of pension provision, with 84% saying the cost would put them off, while two-thirds thought their staff were disillusioned with pensions.
The new research found that among companies that currently offer a pension scheme, nine out of 10 had closed their defined benefit scheme to new members, while 41% had closed it to existing ones too.
The majority of firms that offered a defined contribution scheme also had combined employer and employee contribution levels that were below 8%.
Only 21% of small firms have thought about the cost implications of the new auto-enrolment rules, but a quarter plan to review their pension schemes during the coming year, with 21% looking to reduce costs.
When auto-enrolment comes into force, 62% of companies said workers would be enrolled into their existing scheme, but 20% said they would close their current pension and enrol all workers into Nest (National Employment Savings Trust), a scheme set up by the Government for low to moderate earners.
The group warned that at their current level, pension contributions were unlikely to provide workers with an adequate retirement income.
It said employers needed new rewards to boost their pension contributions, as well as greater freedom to design their schemes.
Stuart Southall, chairman of ACA, said: “A plan to provide new incentives to save, building up over a number of years as the economy recovers, is badly needed.
“The smaller firms covered by this survey – so important to the UK economy in terms of employment and innovation – seem particularly needful of financial incentives to kick start sufficient levels of pension saving.”
:: ACA questioned 404 firms employing 250 or fewer people.