Despite an enormous weight of lobbying and advice from all sides, the authors of the independent review of auto-enrolment commissioned by the coalition government have opted not to allow even so called “micro-employers” – that’s you and your nanny – to be excluded from the auto-enrolment provisions.
The Federation of Small Business (FSB), not surprisingly, has reacted with outrage, warning its members of the ‘ticking pensions time bomb’. The FSB reckons that once the administration costs and the compulsory three percent employer contributions are totalled up, the cost to the average small company with four employees will be around £2,500 each year.
Lee Hollingsworth, head of defined contributions consulting at Hymans Robertson says the reason the independent review decided against allowing ‘micro’ exclusions was that any exclusion level would serve as a barrier to growth. If it was set at below four employees, that would create a growth barrier at three employees, when employers would be loath to take on an additional staff member.
Hollingsworth says that prior to the publication of the review, companies had been able to simply put off thinking through their response to auto- enrolment. That time has passed. There is much to do before it becomes compulsory in 2012, he says.
The six-stage process FDs need to follow to prepare is:
• Understand your objectives
• Design and test your plan financially so you know what it will cost in five and 10 years
• Decide on the implementation method – your existing plan, NEST, or some other provider?
• Check that your current in-house resources can meet this
• Check with your payroll supplier as to its capabilities for deductions
• Design your administration process so it can be relied on to run smoothly. The Pensions Regulator will be watching.
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