FSB: Micro firms should be exempt from pension reform ticking time bomb

All micro firms should be exempt from the automatic enrolment pension scheme due to come into force in 2012, the Federation of Small Businesses (FSB) said today.

The FSB is calling for all micro businesses to be exempt from automatically enrolling their staff into a pension scheme to remove the regulatory and financial burden on these businesses.

Responding to the consultation, ‘Government review of automatic enrolment’, the FSB warns that the cost and time spent on administrative work will damage micro firms – those with 10 employees or less – and that the pension schemes set up by Government do not meet the needs of micro firms.

The proposed changes are also very complicated for small businesses to put in place, and the FSB is concerned that small firms do not have the expertise they need to choose a pension scheme for their staff – FSB research shows that seven in 10 business owners do not feel confident in choosing a pension scheme for their staff.

For small and medium sized businesses, the FSB is instead calling for a default scheme to be set up in which everyone who is not currently saving should be enrolled. It should be based on the following principles to:

.Deliver to all employees and the self-employed the opportunity to save for a pension at an annual charge of 0.3 per cent or less.

.Use a national payment collection scheme, such as PAYE, to decrease the administrative burden on small businesses.

.Provide members with the option of investment in very low cost funds.

.Keep contribution rates under constant review to identify whether changes are needed to achieve objectives.

The FSB is also extremely worried that the majority of small businesses and their employees are unaware that the country’s pension scheme will change in only two years time, and is calling on the Government to raise awareness of the default pension scheme to ensure that this ticking time bomb doesn’t hit small firms without warning.
Mike Cherry, Policy Chairman, Federation of Small Businesses, said:

“The FSB welcomes initiatives to help people save for their future in a pension but we are still concerned the new automatic enrolment pension scheme is going to be an administrative headache for small firms – particularly micro firms – and will cost them in time and money.

“We know that small firms do not feel confident in choosing a pension scheme because of its complicated nature and we are thoroughly disappointed that five years on from the original proposals, the pensions industry has yet to come up with an efficient system to cater for micro firms. The FSB is calling on the Government to make micro firms exempt from the automatic enrolment scheme and improve proposals for small firms.”

ENDS

Notes to Editors

1.The FSB is the UK’s leading business organisation with over 213,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk.

2.To read the consultation response, please go to www.fsb.org.uk

3.The original legislation was supposed to fully encompass the recommendations of the 2005 Turner report into pensions. To date the Government has failed to develop a credible default scheme in the National Employment Savings Trust (NEST) and it is not in the financial interests of the pensions industry to develop a similar scheme. Thus the Government’s intention to cater for those on low pay without any private pension provision has fallen by the wayside combined with the fact that the burden of compliance with a ‘qualifying scheme’ is disproportionate to the benefits gained for any business with less than 10 employees. The FSB therefore recommends that all micro businesses be exempted from automatic enrolment into any form of pension scheme.

4.To view a copy of the Pensions survey, please email prue.watson@fsb.org.uk

Contacts

Eric Beech: 020 7592 8128/ 07917 628998 eric.beech@fsb.org.uk
Prue Watson: 020 7592 8121 / 07825 125695 prue.watson@fsb.org.uk
Sara Lee: 020 7592 8113 / 07595 067068 sara.lee@fsb.org.uk

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