Nearly half of small businesses say they are not yet ready for pensions auto-enrolment with many firms complaining the additional burden is too great, according to a study.
The research, carried out by the Federation of Small Businesses, found that although smaller firms generally believe auto-enrolment will be good for their staff and that workers should save for the future, many are still unclear what they need to do, when they need to do it, and how much it will cost.
Three in four firms (76%) said auto-enrolment pensions put too much pressure on businesses like theirs.
Over the next two years more than a million small and micro businesses will need to set up a workplace pension for their employees under the Government’s automatic enrolment rules.
January sees the number of employers reaching their designated staging date – the date on which they need to start complying with auto-enrolment – rapidly ramp up with tens of thousands ‘staging’ each month in 2016 and 2017.
The FSB research found that firms which have already introduced a workplace pension reported average overall costs of £1436, with one in five business (19%) reporting costs upwards of £2000.
Although costs are likely to be higher for firms with more than 50 employees, the findings suggest that the smallest business could be underestimating the costs too.
When asked how they accommodated the cost of setting up a workplace pension, 70 per cent of businesses which had already done so said they absorbed the expense into general operating costs or accepted lower profits. However, a fifth (21%) said they had frozen or reduced wages in order to cover the cost of auto-enrolment.
Those firms yet to start auto-enrolment said they were more likely to be planning a wage freeze or cuts in response, with 30 per cent expecting to do so. This suggests that as the rollout reaches greater numbers of businesses, this could act as a further drag on pay growth as employers look to manage increasing costs.