Changes to workplace pensions could pile more pressure on small employers, risking higher prices, fewer jobs and slower growth, the Federation of Small Businesses has warned.
A new report by the Federation of Small Businesses (FSB) has found that proposed government workplace pension changes could see small firms having to raise their prices or cut staff.
FSB research finds that auto-enrolment is already "piling cost and complexity" onto small employers. Most employers say that decoding pension rules is a headache (53%), and a quarter (24%) are paying over £500 a year for advice - even before new changes are introduced.
The second phase of the government's Pensions Review, due later this year, could heap further pressure on small firms that are already dealing with bigger wage bills and mounting National Insurance contributions (NICs), according to the FSB. Small employers want to do right by their staff - but 79% are concerned about the rising cost of employment.
"Entrepreneurs have taken on auto-enrolment, absorbed the costs, navigated the jargon and kept paying into their staff's pensions even when their own margins have fallen. But goodwill has limits." Tina McKenzie, FSB policy chair.
Auto-enrolment pension reforms
Potential changes to workplace pensions could include a rise in contributions. If employer pension contributions were to double to 6%, for example, 92% of small employers would have to make difficult decisions:
- 52% would raise prices;
- 38% would recruit fewer workers;
- 34% would cut profits or absorb costs;
- 14% would reduce the number of employees.
One of the proposals could see pension contributions applied from the very first pound earned, instead of the current £6,240. This would see 82% of small employers affected negatively, including 19% that would cancel or scale down plans for investing in their business. Over one-third (36%) of small business owners say they would have to raise prices and 32% say they would cut their profits or limit their earnings.
"If the government wants pensions policy to succeed, it must prioritise clarity over complexity and provide the right support. This is not about resistance to pension reform, it's about the cumulative burden of regulation and the rising cost of employment. Small firms are already feeling the pinch - NICs and wage increases are really taking their toll - and any new reforms could push many to breaking point. This is no time to add new burdens. Ministers should pause, take stock and think carefully before stacking more costs on firms already under strain." Tina McKenzie, FSB policy chair.
What's next for workplace pensions?
The Federation of Small Businesses is calling for phase two of the Pensions Review to look at the financial and admin burden on small businesses, including the cost of advice, running payroll and getting to grips with the rules, before bringing in new proposals. Last November, the Labour government said it would only make changes to auto-enrolment if the impact on businesses was fully considered.
Written by Rachel Miller.