FSA advice on AE could harm small businesses

New guidance from the Financial Services Authority states base level contributions must be calculated as net rather than gross, meaning any charges incurred by the scheme must be paid for through extra contributions because it must not eat into the 8 per cent minimum.

The pensions industry is especially concerned about small businesses, for which contributions totaling 10 per cent of pay, rather than 8 per cent could leave people struggling to afford the extra payout.

The legislation had previously been silent on the issue and the move was a surprise to consultants.

Sean McSweeney, principle employee benefits consultant at AWD Chase de Vere, said he believes employers “won’t bother” with consultants as a result, and added it would push many of them towards the National Employment Savings Trust.

AWD recently described Nest as a “dead duck” because its charges are “not competitive” and it provides little employer support and lacks experience.

It is urging employers to look for alternative for auto-enrolment providers.

And Roger Sanders, managing director at Lighthouse Group, expressed concern small businesses could find it difficult to cough up the extra contributions. “It really wasn’t clear in previous documents,” he said. “It will affect any business that was planning on providing minimum contributions to staff being auto-enrolled, but come as a particularly nasty surprise for small businesses.”