Features

Small businesses can't dodge pensions auto-enrolment

Regulators turn the focus on employers looking to circumvent auto-enrolment and lock employees out of pensions.

902_MW_P23_Small-Business

Regulators turn the focus on employers looking to circumvent auto-enrolment and lock employees out of pensions.

Small businesses take note: pension watchdogs have vowed to crack down on employers discovered to be encouraging their staff to opt out of the auto-enrolment occupational pensions system in order to cut costs. In the first three months of this year alone, the Pensions Regulator issued 35,862 enforcement notices against employers in breach of the auto-enrolment rules, relative to 28,446 last quarter.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Auto-enrolment obliges employers to enrol almost all their staff into the workplace pension scheme and to make at least a minimum contribution on their behalf, unless workers have specifically opted out. And so far, this application of the "nudge theory" appears to be working. Between the introduction of auto-enrolment in 2012 and last year, pension-scheme membership in the UK has hit record highs, with 85% of staff employed by small and medium-sized enterprises choosing to stay within the schemes set up for them, according to the Department for Work and Pensions.

Be careful what you say

However, the increase in the number of warnings given to employers reflects concerns that an increase in the pension contributions required under auto-enrolment may prompt a spike in opt-out rates. In April, the minimum contribution required from employers doubled from 1% of staff pay to 2%, and this is set to rise again next April, to 3%. For employees, minimum contributions have gone up from 1% to 3%, and will go up to 5% next year.

Advertisement
Advertisement - Article continues below

While some employees may understandably be spooked by the increased cost of pension savings, regulators are determined to prevent employers from using the higher contribution rates as a means to thin out scheme membership and save themselves money. However, it is illegal for employers to offer staff any inducement or encouragement to opt out of the staff pension scheme or to put pressure on them to do so. Earlier this year, the regulator even warned employers to think carefully before writing to employees to point out the forthcoming increase in contributions, in case the communication was regarded as encouragement to opt out.

Nevertheless, there is now anecdotal evidence that some cost-conscious employers are seeking to influence their employees' behaviour. For example, unions complain about staff being unofficially told that opting out could increase their chances of getting a pay rise, or warned that the company's finances are in difficulties and that savings are needed. More seriously, directors of recruitment firm Workchain earlier this month pleaded guilty to gaining unauthorised access to computer data in order to opt temporary workers out of the company pension scheme, in the regulator's first criminal prosecution of individuals under the auto-enrolment laws. Although this is an extreme example, employers should be careful to avoid doing anything that could be construed as encouraging employees to opt out.

SMEs eye lucrative public-sector contracts

Small and medium-sized enterprises (SMEs) are winning more government contracts than ever before, new data shows, with hundreds of millions of pounds worth of deals coming up for renegotiation before the end of the year.

SMEs accounted for 62% of the 23,100 suppliers that won government contracts last year, up from 51% in 2016, according to Tussell, a market intelligence consultant specialising in public procurement. The consultant urged SMEs to exploit the opportunity of an unusually high number of tenders due for completion before the end of the year, with £565m worth of government contracts due to be awarded in the technology sector alone.

Ministers have faced criticism in recent years for failing to increase the value of public-sector work awarded to smaller contractors, even if the numbers of such companies winning contracts have increased. However, the collapse of Carillion, which prior to its downfall was operating contracts worth £5.7bn with 208 government bodies, is widely seen as a potential watershed moment for SME contractors. The government is now rethinking an approach that has often seen it award large tenders to a single big company. The break-up of such work could see more work generated for SMEs.

Advertisement

Recommended

Visit/513684/companies-cut-back-on-their-pensions-bills
Personal finance

Companies cut back on their pensions bills

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs. David Prosser reports.
28 Aug 2019
Visit/509683/good-news-for-savers
Pensions

Good news for pensions savers from HMRC

HMRC has withdrawn its appeal over breaches of the pensions lifetime allowance.
28 Jun 2019
Visit/502738/dont-miss-the-pensions-deadline
Personal finance

Don’t miss the pensions deadline

There are just five weeks left in the 2018-2019 tax year, so make sure you’ve made full use of your allowances.
6 Mar 2019
Visit/501351/doctors-shouldnt-get-special-treatment-for-their-pensions
Pensions

Doctors shouldn’t get special treatment for their pensions

Doctors whose pensions are too big want an exemption from the lifetime allowance. They shouldn’t get it, says Merryn Somerset Webb.
30 Jan 2019

Most Popular

Visit/520525/currency-corner-how-high-can-the-pound-go-against-the-euro-in-2020
Currencies

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020
Visit/investments/property/house-prices/600638/uk-house-prices-may-be-heading-for-a-boris-bounce
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020
Visit/economy/600632/money-minute-friday-17-january-uk-weakness-likely-to-continue
Economy

Money Minute Friday 17 January: UK weakness likely to continue

Today's Money Minute previews UK retail sales figures the UK, inflation data from Europe and industrial production from the US.
17 Jan 2020
Visit/520598/money-minute-thursday-16-january-a-batch-of-company-results
Economy

Money Minute Thursday 16 January: a batch of company results

Today's Money Minute looks ahead to results from a host of UK companies, plus the latest unemployment figures from the US.
15 Jan 2020