Concern for small businesses over the effect of pensions auto-enrolment changes

Changes to auto-enrolment pensions will have a “substantial” effect on small businesses, the Federation for Small Businesses (FSB) has warned, after minimum contributions for employers rose from 1% to 3% in early April. This increase in minimum contributions is likely to have both financial and capacity implications for smaller employers.

Pensions auto-enrolment has caused a dramatic increase in the number of workers participating in workplace pensions. The costs involved for small employers are substantial. On 6 April, minimum contributions to auto-enrolment pensions increased to 8% of wages, up from 5%. Of this, employers will now be required to contribute 3%, up from 1%.

Research shows that the introduction of auto-enrolment has meant seven in 10 of UK workers employed by small businesses were now on workplace pensions. The Government Minister for pensions has said that automatic enrolment has been an “extraordinary success, transforming pension saving and improving the retirement prospects of more than 10 million workers”.

In real terms, it is thought that the increase in minimum contributions means an employer will now contribute £55 a month to the average UK employee’s pension pot, up from £37.

The average employee can now expect to see £30 of their wages go towards their pension each month and see their total pension savings increase by an estimated £55,000.