Auto-enrolment contribution increase could affect small firms

Small businesses could struggle to comply with an increase in auto-enrolment pension contributions, according to a report by the Association of Consulting Actuaries (ACA).

The ACA is concerned that small firms will struggle to deal with the short period of time between auto-enrolling their employees in 2015 and 2016 and the minimum contribution increases in 2017 and 2018.

The research also warned that employees may not be able to withstand the increases due to low earnings in the small business sector.

The minimum auto-enrolment contributions are scheduled to rise in October 2017 and October 2018.

From 1 October 2017:

  • minimum employer contributions will rise from 1% to 2%
  • total minimum contributions will increase from 2% to 5%.

From 1 October 2018:

  • minimum employer contributions will increase to 3%
  • total minimum contributions will rise to 8%.

The survey of small and medium-sized employers found that:

  • the average employer contribution for newly-enrolled employees is between 1% and 3% of earnings
  • the average newly-enrolled employee contribution is between 1% and 2%.

In light of the survey findings, the ACA has called on the next government to launch a review of current auto-enrolment policy after the general election in May.

David Fairs, chairman of the ACA, said:

“In the near-term government may need to be pragmatic and consider some targeted financial incentives to help deliver the desired policy outcome of wider and deeper pension coverage in smaller firms.”

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