It’s not automatic for businesses

SMEs need to get their skates on to tackle auto-enrolment, warns Simon Linstead. Small businesses need to seek advice early, or they could get caught in a advice ‘bottle neck’

In 2012 there were 4.8 million businesses in the UK with over 99 per cent of small or medium sized (SME), employing less than 250 people.

From April 2014, these SMEs will start to need a workplace pension scheme that meets qualifying standards. Failure to provide this will lead to fines of up to £2,500 – a day!

Employers will automatically enrol workers, who meet qualifying criteria, into a workplace pension and although employees are able to ‘opt out’, should this be encouraged, again hefty fines can be levied.

This is no longer new information and schemes have been live since October 2012. But what many businesses may not appreciate are the difficulties that they may face when trying to place their workplace pension scheme with a provider.

Auto-enrolment will create demand of around 30,000 new schemes in this year alone, yet most scheme providers will only have the capacity for 400, with one provider intending on closing its doors once it reaches 350.

This is already causing a bottle neck in the system with scheme providers ‘cherry picking’ the most profitable schemes.

Casual viewers may assume this is bad planning when, in fact, I believe it stems from the cascade of pension and financial regulatory changes forced upon insurance companies over the last 13 years.

Millions have been spent implementing these changes and failings from low-funded stakeholder pensions have resulted in ill feeling.

Enquiries to scheme providers are generally passed from pillar to post with no one taking much accountability or showing enthusiasm.

It’s no wonder that IFAs are shying away from auto enrolment as many feel it’s a ‘hassle’ that they just don’t want to involve themselves with. With delays in obtaining terms, employers place blame on their advisers, citing lack of strength, understanding or effort.

NEST is not only a real alternative to the traditional scheme, but can complement any tiered benefits structure to suit. But it seems that a lack of understanding means that for many advisers, NEST is treated as a ‘last resort’ instead of a viable option. Administering schemes online the employer can upload directly or ‘delegate’ some or all roles to their appointed adviser.

By 2050, the ratio of those of working age to pensioners will be two to one. The current system can no longer support future retirement incomes and people simply do not make adequate provision themselves.

My advice: secure a qualified adviser now, cleanse your data early, talk to your staff, let them know what’s happening and then start funding your employees pensions as early as you can. Make it part of their package of benefits because some day very soon, it will be compulsory.

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About the author

Simon Linstead is the Managing Director of Nurture Financial Planning in Norwich. After a successful career supporting IFAs as an insurance representative, Simon founded Nurture Financial Planning in 2009 with RDR in mind. Working closely with clients and professional connections, Simon believes the best results come by working as a team.

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