Small firms ‘fertile territory’ for auto enrolment

Firms with less than 50 employees are fertile territory for auto enrolment, according to the minister for pensions, Steve Webb.

When questioned about the challenges smaller employers and micro-businesses will present when they stage during a work and pensions select committee evidence session this week, Webb said they will be dealing with a set of people who have never been contract-enrolled before, so in a way they are “more fertile territory”.

Auto enrolment seems to have gone well so far, but people are concerned about what happens now that smaller firms and micro-businesses start to stage.

On what the DWP is going to do to support smaller employers to make sure...

Continued...

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Comments
dbowleracca's picture

Poor value for employees of smaller firms and those on low wages

dbowleracca | | Permalink

Very few of the life companies are even offering to take business on and the ones that do are being selective about which employers they take on.

Most employees of smaller businesses are going to get a poor deal out of this with the only choice being NEST or Peoples Pension.

Unless it's compulsory enrolment then it's going to go wrong. And this is yet another burden on employers

.    2 thanks

ireallyshouldkn... | | Permalink

"small" is under 50 employees?

Just goes to show the mindset of ministers. 

50 is a very different business to 15 which is a very different business to 1 or 2. 

 

 

AllanLMaxwell's picture

The market will adapt

AllanLMaxwell | | Permalink

There is already evidence that the more traditional providers will be able to offer a contract to SMEs.  It has taken them time to develop a profitable solution but it will happen.  The best approach for SMEs is to embrace the change and make a virtue out of the introduction of their new pension arrangement.  Negativity from the employer will lead to negativity from the employees.  Be positive you will reap the benefits.

Excuse me what planet?

The Black Knight | | Permalink

AllanLMaxwell wrote:

There is already evidence that the more traditional providers will be able to offer a contract to SMEs.  It has taken them time to develop a profitable solution but it will happen.  The best approach for SMEs is to embrace the change and make a virtue out of the introduction of their new pension arrangement.  Negativity from the employer will lead to negativity from the employees.  Be positive you will reap the benefits.

Excuse me!

The costs of implementation are show stoppers for many small firms!

It's not the costs of pension contributions we can manage that.

it's the £1,500 to £9,000 IFA fees for doing this.

They could have made it simple and engaged small business that wants to look after it's employees.

Instead the costs and fines will lead to the letting go of employees, making them self employed or forcing them to become limited companies, or use umbrella companies.

If your employees are on 16 hours a week at NMW levels then they are not included! Well done tescos and yet still there are rumours of a fine.

Quite frankly these happy psychopaths are living in cloud Cuckoo land.

Quite

The Black Knight | | Permalink

ireallyshouldknowthisbut wrote:

"small" is under 50 employees?

Just goes to show the mindset of ministers. 

50 is a very different business to 15 which is a very different business to 1 or 2. 

Quite!

Were all a sub class of human when you get so small they don't understand.

Wasted breath I know!

 

AllanLMaxwell's picture

Is that positive?

AllanLMaxwell | | Permalink

The Black Knight wrote:

AllanLMaxwell wrote:

There is already evidence that the more traditional providers will be able to offer a contract to SMEs.  It has taken them time to develop a profitable solution but it will happen.  The best approach for SMEs is to embrace the change and make a virtue out of the introduction of their new pension arrangement.  Negativity from the employer will lead to negativity from the employees.  Be positive you will reap the benefits.

Excuse me!

The costs of implementation are show stoppers for many small firms!

It's not the costs of pension contributions we can manage that.

it's the £1,500 to £9,000 IFA fees for doing this.

They could have made it simple and engaged small business that wants to look after it's employees.

Instead the costs and fines will lead to the letting go of employees, making them self employed or forcing them to become limited companies, or use umbrella companies.

If your employees are on 16 hours a week at NMW levels then they are not included! Well done tescos and yet still there are rumours of a fine.

Quite frankly these happy psychopaths are living in cloud Cuckoo land.

You are absolutely right it is ridiculously complicated.  But you are also being extremely negative.  You are going to have to comply with the legislation.  The potential costs of not doing so are more excessive.  Change your mind set.  Make sure you get full value from your IFA.

 

You could do it yourself.  How much would that cost you?

be cheaper

The Black Knight | | Permalink

be cheaper to use the IFA to tell them they can opt out

then give them an extra 1% if they are not in the scheme.

other than that we will be left with the poor mans version and that's the route most of my clients are likely to take to avoid excessive IFA fees.

Not negative just the way it will work.

AllanLMaxwell's picture

Tread carefully

AllanLMaxwell | | Permalink

The Black Knight wrote:

be cheaper to use the IFA to tell them they can opt out

then give them an extra 1% if they are not in the scheme.

other than that we will be left with the poor mans version and that's the route most of my clients are likely to take to avoid excessive IFA fees.

Not negative just the way it will work.

 I assume that you will also offer to pay the fines that your clients receive for encouraging opting out!

 

 

nope

The Black Knight | | Permalink

AllanLMaxwell wrote:

The Black Knight wrote:

be cheaper to use the IFA to tell them they can opt out

then give them an extra 1% if they are not in the scheme.

other than that we will be left with the poor mans version and that's the route most of my clients are likely to take to avoid excessive IFA fees.

Not negative just the way it will work.

 I assume that you will also offer to pay the fines that your clients receive for encouraging opting out!

 

Nope it's not our field. We are not advising on it at all.

the IFA can tell them they can opt out, not the client.

I remember an edict being issued that we were not to comment on endowment mortgages, the rest is history.

Only the sharks will win.

Think the fine collectors/ issuers are on commission too! Independence or reasonable behaviour out of the window then.

 

 

AllanLMaxwell's picture

Wrong

AllanLMaxwell | | Permalink

As I said you need to be very careful here.  If you have an IFA who is advising employees who is paying for this?  Your client I would guess.  I’m also guessing that you might have suggested this option to your client.

 

If the IFA is acting on behalf of your client (why else would they be involved?) then it is still your client’s responsibility and possibly yours for encouraging opting out.

 

Also can’t see why an IFA would recommend opting out.

.

ireallyshouldkn... | | Permalink

"can’t see why an IFA would recommend opting out"

It depends what the firm is offering as replacement

Take an individual who does not contribute to an ISA. Argubly saving in an ISA for a basic rate tax payer is better and more flexible than a pension over 20+ years given the far lower charges for investing in essentially the same funds,  the fact you don't have to buy an annuity at the end, the fact you have full flexibility about drawdown and the income is not taxed. This would work for the small employer who will match the contribution they would have had to pay in a pension as the employer sidesteps all the costs and hassle.  

Not all IFA's are just gunning for the commissions.

Doh!

The Black Knight | | Permalink

AllanLMaxwell wrote:

As I said you need to be very careful here.  If you have an IFA who is advising employees who is paying for this?  Your client I would guess.  I’m also guessing that you might have suggested this option to your client.

 

If the IFA is acting on behalf of your client (why else would they be involved?) then it is still your client’s responsibility and possibly yours for encouraging opting out.

 

Also can’t see why an IFA would recommend opting out.

I am glad you are so confident with your guessing. As you might expect you guessed wrong. That's the danger with a blinkered positive attitude.

I don't need to be careful at all! As stated previously we are not advising on this at all.

I suggest you speak to an IFA though, if you can afford it first though to find out the many options available.

I am just going to watch the train crash!

Those that are forced underground have perhaps already worked out that the continual limited company, no tax or accounts at all route works really well. An extension of this will be all employees required to have their own limited companies too. You don't even have to do anything just £18 for a limited company and trade until companies house strike it off for you.

 

What is the best advice for the employee then?

The Black Knight | | Permalink

What is the best advice for the employee then?

You are allowed to contribute 6% of your salary so that the government don't have to pay you the difference between the state pension and what you need to live on paid as Pension tax credit.

Not having a positive attitude about earning some fees from this leads me to see this as an additional tax, why not just increase national insurance? oh no we can't do that someone will notice so we will lie and cheat our way through the problem and pass the bill onto the greedy employers.

Or you could opt out! (but if your employer tells you this we will punish them) and keep your 6% and still get your top up, and get the same advantages of the 16 hour a week everything paid for brigade (the clever club)

I think you will also find the opting out is being done by the well paid too, but that is between their IFA confessor and the thought police.

AllanLMaxwell's picture

You can't offer a replacement!.

AllanLMaxwell | | Permalink

ireallyshouldknowthisbut wrote:

"can’t see why an IFA would recommend opting out"

It depends what the firm is offering as replacement

Take an individual who does not contribute to an ISA. Argubly saving in an ISA for a basic rate tax payer is better and more flexible than a pension over 20+ years given the far lower charges for investing in essentially the same funds,  the fact you don't have to buy an annuity at the end, the fact you have full flexibility about drawdown and the income is not taxed. This would work for the small employer who will match the contribution they would have had to pay in a pension as the employer sidesteps all the costs and hassle.  

Not all IFA's are just gunning for the commissions.

 

The firm can’t offer a replacement.  This will be seen as encouraging opting out.

AllanLMaxwell's picture

Wrong again

AllanLMaxwell | | Permalink

The Black Knight wrote:

What is the best advice for the employee then?

You are allowed to contribute 6% of your salary so that the government don't have to pay you the difference between the state pension and what you need to live on paid as Pension tax credit.

Not having a positive attitude about earning some fees from this leads me to see this as an additional tax, why not just increase national insurance? oh no we can't do that someone will notice so we will lie and cheat our way through the problem and pass the bill onto the greedy employers.

Or you could opt out! (but if your employer tells you this we will punish them) and keep your 6% and still get your top up, and get the same advantages of the 16 hour a week everything paid for brigade (the clever club)

I think you will also find the opting out is being done by the well paid too, but that is between their IFA confessor and the thought police.

 

Pension Credit is effectively being abolished.  From 2016 the Basic State Pension will be increased to £144 per week which is more than the Pension Credit level.  Any pension savings made will therefore improve the at retirement position.

.    1 thanks

ireallyshouldkn... | | Permalink

@Allan, re firms "not offering a replacement" I am talking about micro business. Not "small" ones with 50 employees. The vast number of payrolls by sheer volume (apart from ones with just directors on them) are ones with 1 or 2 employees where the employee works directly with the boss.  There is no "HR" department. There is nothing written down, often there is no contract of employment. Who is to say what has been 'offered' or 'not offered'?  

Its this sector of the market I deal with, all bar a handful of my clients have less than 5 employees. And its in the sector the real problems lie with this implementation as the clients do not have the (a) time, or (b) skills or (c) really give a stuff about all of this.

They will either want a quick and cheap solution, or simply ignore the problem until the first warning (there is no fine for the first warning) and see where the land lies at that point.  This is a very practical solution to complex and new legislation that will invariably get changed within the first couple of years.  ie don't worry about it until your hand is forced, its often the only way for a micro biz to deal with regulation, ie ignore it!

NEST's idea of Who Small Businesses Should Involve in the Setup    1 thanks

davidkitley | | Permalink

Whoever is responsible for your IT, internal communications and payroll, and the people who’ll be responsible for managing NEST.  How many small businesses, who will  have no other option other than to use NEST for Auto Enrolment, have a team a people like this? (the first sentence is taken from NEST website employers set up section, 'Who to involve').

Abolished?

The Black Knight | | Permalink

AllanLMaxwell wrote:

Pension Credit is effectively being abolished.  From 2016 the Basic State Pension will be increased to £144 per week which is more than the Pension Credit level.  Any pension savings made will therefore improve the at retirement position.

Abolished or renamed as something else?

I'll believe that when I see it.

What are the tax credit middle class on 16 hours and £8,900 salaries going to do then.

I got it their children breed some more and gift them to the grandparents so the child tax credit claim continues.

The workers missing 6% can be financially supported by loans from ripoffonya.com so they can eat.

AllanLMaxwell's picture

Make a virtue out of it.

AllanLMaxwell | | Permalink

@ireallyshouldknowthisbut First of all I would not under estimated the political will for Auto-enrolment to work.  If there is a large scale rebellion in this group then contributions are likely to be made compulsory.

 

The initial problem is that even this size of micro business will have to register their pension arrangement with the Pension Regulator (tPR).  So if they don’t have an arrangement to register then tPR may assume that they have taken some steps to avoid having a scheme.  Guilty until proven innocent.  Although it will probably take some wilful disobedience to generate a fine.

 

As I said earlier this best approach is to be positive about Auto-enrolment.  Have a conversation with your employee.  Explain that this is happening and that they really should be saving for their retirement and get a decent pension plan set up.  A single employee will probably have a good idea of the financial position of the business and probably knows that they need to save for their retirement.

If we all

The Black Knight | | Permalink

If we could all join the civil service pension scheme that would be fair to everyone!

There was no need to make it this complicated or expensive. As said above they do not have a clue about small/micro business or anything else for that matter.

If you watch the parliamentary accounts committee we have MP's that don't even understand (or perhaps ever be capable of understanding) basic VAT.

Rebellion is a good thing.

"If you acquiesce now your children will be next"

AllanLMaxwell's picture

But would you be able to pay for it?

AllanLMaxwell | | Permalink

The Black Knight wrote:

If we could all join the civil service pension scheme that would be fair to everyone!

There was no need to make it this complicated or expensive. As said above they do not have a clue about small/micro business or anything else for that matter.

If you watch the parliamentary accounts committee we have MP's that don't even understand (or perhaps ever be capable of understanding) basic VAT.

Rebellion is a good thing.

"If you acquiesce now your children will be next"

 

I’d go for the MP’s pension scheme.  It is even more generous.  Very complicated and even more expensive.

I do agree with your point.  The public sector is well catered for pensions wise and the vast majority of public sector employees have no idea how valuable that benefit is.  Nor that it is funded for out of general taxation.

But not taking the opportunity to make retirement savings in the private sector is not going to solve the problem that exists there.  Just standing on the side moaning while doing nothing to help themselves is no way to improve the position.  We have to start from somewhere and move to build it into a decent pension proposition.

AllanLMaxwell's picture

Nothing!

AllanLMaxwell | | Permalink

The Black Knight wrote:

AllanLMaxwell wrote:

Pension Credit is effectively being abolished.  From 2016 the Basic State Pension will be increased to £144 per week which is more than the Pension Credit level.  Any pension savings made will therefore improve the at retirement position.

What are the tax credit middle class on 16 hours and £8,900 salaries going to do then.

 

Nothing! At that level of income they will have sufficient credit to earn the full state pension of £7,540 per annum.

.    1 thanks

ireallyshouldkn... | | Permalink

@Allan, I appreciate you are trying to puff this for your own business and no doubt rubbing your hands at all the extra commission, but come on.

The only people "being positive" about this are IFAs like, er you! Who are trying to sell stuff.

Pensions are not an automatic choice of investment. They are simply not for everyone and everyone's circumstances to say otherwise is naive. 

Accountants cant "have a conversation with their (clients) employee"  and start recommending investments, which if they are a basic rate tax payer are probably unsuitable anyway.

Its only the tax relief that makes it worthwhile when you are higher rate, for a basic rate employee its a whole different story.  ISA's might be more suitable for instance given the far lower fees and higher flexibility. 

I should point out i don't do pensions, I  will get about £8-10k PA from some old jobs when i paid in due to employers matching payments, but the rest of my retirement will be funded in other ways. I MAY buy an annuity in time, but I equally might well not. My choice as I am not tied into a pension. 

 

 

NEST

The Black Knight | | Permalink

NEST do you still need an IFA to advise on NEST or can the processing of the government scheme be aided by accountants so long as advice is not given on pensions and investments.

The problem with tiny businesses is that they can't afford the implementation and they can't afford the fines so effectively they are damned if they do and damned if they don't

I think many are going to have to look at the government preferred employment model of NMW at 16 hours a week and perhaps get rid of full time employees replacing them with two state subsidy ones, the employees are considerably better off under this method too having done the calculation recently the second 16 hours are worked for a loss. The employer makes an immediate saving of employers NIC too.(could be £1,200 p.a per employee split)

It is a bloody disgrace but that's how it works.

I note that the Nest product guarantees to invest at least 70% of the contributions in the fund so that only 30% are wasted in admin charges. Which after the tax relief advantage and if you didn't gamble the fund on other than risk free investments, you might have nearly as much left as you put in.

Is the providing of an income for life as required what we used to call an annuity? Can they not use draw down and get their money back then? Because you don't half get spanked at that point too.

Think I would be opting out and making my own arrangements looking at ISA's as part of it.

Added to which you don't get taxed when you draw out your ISA money.

AllanLMaxwell's picture

I didn't write the law!

AllanLMaxwell | | Permalink

ireallyshouldknowthisbut]</p> <p>@Allan, I appreciate you are trying to puff this for your own business and no doubt rubbing your hands at all the extra commission, but come on.</p> <p>[quote=ireallyshouldknowthisbut wrote:

@Allan, I appreciate you are trying to puff this for your own business and no doubt rubbing your hands at all the extra commission, but come on.

As commission has been banned since the end of last year I seriously doubt it.

I will of course be offering a service to SMEs for which I will charge a fee.  The service I offer should allow employers to take the necessary action to comply with the new legislation with minimal fuss or disruption to their business.

ireallyshouldknowthisbut wrote:

Pensions are not an automatic choice of investment. They are simply not for everyone and everyone's circumstances to say otherwise is naive. 

I agree but the law now says that employers must have a pension scheme and the penalties for not doings so can become severe.

ireallyshouldknowthisbut wrote:

Accountants cant "have a conversation with their (clients) employee"  and start recommending investments, which if they are a basic rate tax payer are probably unsuitable anyway.

Its only the tax relief that makes it worthwhile when you are higher rate, for a basic rate employee its a whole different story.  ISA's might be more suitable for instance given the far lower fees and higher flexibility.

For those who need advice and don’t understand the options the fees on ISA’s are exactly the same as those on pension policies.

ireallyshouldknowthisbut wrote:

I should point out i don't do pensions, I  will get about £8-10k PA from some old jobs when i paid in due to employers matching payments, but the rest of my retirement will be funded in other ways. I MAY buy an annuity in time, but I equally might well not. My choice as I am not tied into a pension. 

But you have saved for your retirement which is something that well over 50% of the population are not doing.  So why are you denigrating an attempt to improve the retirement position of so many people?