Small and micro employers are finding auto-enrolment less costly and time-consuming than they had anticipated, research by the Department for Work and Pensions has found.
About 8.7m people have been enrolled into an occupational scheme by more than 800,000 businesses since the introduction of auto-enrolment in 2012, according to the DWP's report.
Previous fears among small companies that the set-up process would be time-consuming and expensive appear to have been mislaid, with businesses finding the cost and time burden involved to be lower than they had anticipated.
If we send lots of letters to people saying, ‘We’re about to treble your contributions’ you could already trigger some opt-outs
Steve Webb, Royal London
The research found that most small employers found that the actual cost of implementing auto-enrolment was about £500, and that the whole process only took two or three days to complete.
Moreover, employers typically felt that auto-enrolment was a necessary and sensible policy, the report said.
Guy Opperman, minister for pensions and financial inclusion, said in a statement: “Business owners regularly tell us that staff who feel supported by their employer are engaged and committed… there is no better way to demonstrate the value of your employees than by contributing towards their workplace pension.”
Small businesses may need outside help
Evidence suggests that small and micro businesses have shown high levels of awareness with regard to their auto-enrolment duties.
Research published by the Pensions Regulator in 2016 showed that 88 per cent of small employers surveyed demonstrated an understanding of auto-enrolment, closely matched by 79 per cent of micro-sized employers.
Mark Futcher, partner and head of DC workplace wealth at consultancy Barnett Waddingham, echoed the view that businesses are willing to comply with auto-enrolment, but added that a lack of in-house expertise has often meant a reliance upon their accountants.
“Most of them are just saying, ‘I’ve got to comply with this, I want to comply with it in the cheapest possible way and [with] the least hassle’ because they don’t have dedicated people in HR, payroll, finance to concentrate on this,” he said.
Small businesses without full-time pensions staff are more concerned with properly executing their auto-enrolment duties to their employees, rather than the substance of what they are providing, according to Futcher.
“Most of them are saying, ‘I don’t even want to understand the nuances of this. I know broadly that I need to put people into the pension scheme and what’s the best way to do that?’ They just want to be told that this is the best way to comply.”
Technology helps small businesses to comply
In the past, experts had expressed concerns over the costs and complexity of auto-enrolment for small businesses. Henry Tapper, director at First Actuarial, said that technology has played a useful role in its introduction.
“The reason they comply is that almost all of them [now use] software which makes it very easy for them to comply. The big compliance problem which we anticipated, which was that people wouldn’t be able to do it, hasn’t happened,” he said.
It will remain vital to monitor the health of workplace schemes, given their rapid uptake by inexperienced employers following the introduction of auto-enrolment.
Tapper observed the need for an audit mechanism to document scheme activity and protect stakeholders from the effects of a failure of the employer.
“The difficulty is if things do go wrong, most of these employers will have no audit trail” to provide to regulators and staff, he added.
Too much engagement could drive up opt-outs
The DWP’s research found that among the 70 surveyed employers, 58 had no workers who had opted out of their workplace schemes.
Steve Webb, director of policy at provider Royal London, cited “received wisdom” from before the days of auto-enrolment, which had held that it would increase opt-outs at small firms. He observed that opt-outs had not risen in response to auto-enrolment.
Could a shift in AE contributions balance raise saving levels?
Analysis: As questions remain over the adequacy of auto-enrolment contributions, a shift in the balance between employers and employees might provide the answer towards raising retirement saving levels.
Webb cautioned against excessive engagement between schemes and employees in the run-up to the scheduled increase in employee contributions, which will rise to 3 per cent from 1 per cent in April 2018. They will peak at 5 per cent from April 2019 onwards.
He said that a large number of employees are unaware of their existing auto-enrolment arrangements, and warned that this could increase the number of members opting out of their workplace scheme.
“I think there’s a risk of overdoing this. If we send lots of letters to people saying, ‘We’re about to treble your contributions’ you could already trigger some opt-outs,” he said.
