Most small- and medium-sized companies are unprepared for the cost and complexity of pensions auto-enrolment and unclear about what it will require of them, the Association of Consulting Actuaries has said.
A survey of firms with 250 employees or fewer was published by the ACA today. It found that only 28% of respondents had budgeted to date for the cost of automatically enrolling eligible employees into a workplace pension scheme. Their budget predictions are predicated on opt-out rates averaging between 11-35%, with forecast opt-out rates highest among the smallest firms.
More than eight out of ten (82%) of firms surveyed for A million challenges ahead said they were unaware of the detail of the regulatory regime for auto-enrolment. Of those that are aware of the regime, 53% said it appeared 'complex' and a further 23% saw it as 'very complex'.
While auto-enrolment began for the UK's biggest private sector employers this month, under its staged introduction it will not begin to apply to smaller employers until 2014. From this date, over a million firms, three quarters of which have four or fewer employees, will become subject to the new rules.
ACA chair Andrew Vaughan said that while it was right that pension provision be made available to employees in even the smallest firms, there were concerns that the auto-enrolment rules were 'overly complex' for small employers and whether the staging timetable was 'too rigorous'.
'We also wonder whether the pensions industry had fully taken on board how it will market appropriate pension schemes to so many SMEs, the vast majority of which have no pension provision in place at all at present,' he said.
'One possibility might be the establishment of an approved panel of advisers who are geared up to provide cost effective advice on auto-enrolment to SMEs.'
The ACA's research found employers were unsure how to respond to the requirements of auto-enrolment. Over one in four (27%) of small firms with an existing pension scheme said they had not decided whether they would use this scheme for auto-enrolling new scheme members - compared to just 9% in the same survey two years ago.
At the same time, over four in 10 firms who presently offer no pension scheme were unsure what they would do when auto-enrolment arrives. Over a third (38%) expect to auto-enrol all of their employees into the government-backed National Employment Savings Trust, with 19% opting for an employer's scheme.
There was significant support for auto-enrolment to have been delayed until the economic situation improves, with 57% of firms saying they would have preferred it to be delayed until consistent economic growth returns. Similarly, 58% would prefer it to be delayed until there are general increases in real incomes.
The survey also found employee participation in existing pension schemes was falling, with cost identified as one of main reasons for employees not signing up to a pension scheme by almost all respondents (94%).
Vaughan added: 'Let us hope the economic situation and the public's perception of the benefits of pension savings will improve during the staging period, otherwise the feedback from our survey suggests that concerns over both cost and disillusionment with pensions may prompt high opt-out rates.'