Analysis: When small and micro employers began auto-enrolling workers, it was unclear how they would react to the cost, administration and communication aspects of complying with the reforms. But emerging research suggests companies see value in the policy and are prepared for phased increases.
There was plenty of talk about the challenges they may face due to their size, so how are they coping so far?
Twenty-one per cent paying above the minimum is really encouraging
Nathan Long, Hargreaves Lansdown
Research by the Department for Work and Pensions last year found that small and micro employers are finding auto-enrolment less costly and time-consuming than they had anticipated.
Small employers positive about AE
A more recent DWP survey has found that small and micro employers are showing positive attitudes towards workplace pensions for their staff, with high levels of awareness and support for auto-enrolment minimum contribution rate increases.
The study, published on June 20, found that smaller employers are typically supportive of having occupational pensions for their employees.
Seventy-one per cent of those who had auto-enrolled their employees into a qualifying workplace scheme between September 2016 and March 2017 felt that the policy was a good thing.
But while two thirds of employers agreed it was their responsibility to encourage staff not to opt out, just 54 per cent viewed it as their duty to ensure that their employees could manage financially in their retirement.
Widespread knowledge of AE increases
The research showed that there is also a widespread awareness and support for planned increases in minimum employer contribution rates.
Eight in 10 small and micro employers were aware this would be taking place, and two-thirds believed it was a good thing for their workers.
Forty-four per cent believed they would find it easy to comply with this change, whereas 29 per cent felt it would be difficult.
Kate Smith, head of pensions at provider Aegon, said it was “surprising that most small and micro employers are very positive about auto-enrolment, and know about it – so are planning for the future”.
“I’m very pleased with those results, that the knowledge is there, the message is getting out, and they’re getting ready for it,” Smith added.
Nathan Long, senior pensions analyst at Hargreaves Lansdown, said the findings were encouraging, given the size of the employers surveyed – many of whom would not have had a pension scheme before auto-enrolment.
“The awareness is quite high that the contribution is going up, so that’s a good thing,” Long noted.
However, he added that there are “obviously going to be a few employers who aren’t aware… given the fact that often with a small employer it’s just a single individual who’s running a business and… offering a pension scheme isn’t really on the radar”.
The survey, which was conducted before the April 2018 minimum auto-enrolment contribution increases, found 21 per cent were contributing above the minimum requirement of one per cent, and most of these were contributing more than three per cent.
“I still think 21 per cent paying above the minimum is really encouraging,” said Long.
The study also found that engagement with auto-enrolment and ongoing duties often involved intermediaries and guidance from the Pensions Regulator.
Phil Farrell, partner at Quantum Advisory, said small and micro employers are more reliant on guidance from regulators, as they are less likely to outsource to employee benefits consultants or have their own HR functions.
He said this goes some way towards explaining why the regulator was the most commonly cited source of information on compliance for these employers, followed by accountants or finance firms – “who they would already have appointed anyway”.
Face-to-face comms easier for small businesses
Small and micro employers typically engage their staff in auto-enrolment in a range of ways, according to the survey.
The majority complied with the requirement to write to their staff informing them of auto-enrolment, but it was also very common for employers to use more than just written communications to inform their workers.
The research found that the most common forms of non-written communication were one-to-one or face-to-face meetings.
Long noted that for very small employers, providing face-to-face communications may just be a question of sitting down and discussing pensions with five or 10 members of staff, for example.
“But the fact that employers are going to that level of trouble to really make sure that they’re explaining what’s on offer, why it’s been brought in – I think this is really positive,” he said.
John Wilson, technical director at JLT Employee Benefits, said “a lot of research points to the fact that you cannot beat face-to-face in terms of getting the right behaviours from people”.
He agreed that small businesses are perhaps in a better position than large corporates, because “it’s easier to do that sort of interpersonal communication when you’re only talking about a small organisation”.
