Cost of auto enrolment likely to cause pay freezes
Nearly one in six employers believes that the costs of the upcoming pension auto enrolment will result in a cut or freeze to employee wages, a new report has warned.
According to the Chartered Institute of Payroll Professionals (CIPP), one in 100 companies may also consider laying off staff in order to meet the costs, with a further one per cent saying that the changes may put them out of business.
A third of businesses on the other hand believe there will be little impact to business due to a high number of staff already enrolled into a pension scheme.
Automatic enrolment is being gradually phased in from October this year, when the largest firms will be the first to auto enrol all eligible employees. It will be compulsory for all firms to do so from 1 January 2016.
Although 67 per cent of employers are aware of the automatic enrolment legislation, a third are still unaware of the upcoming changes and are therefore not preparing.
The smallest of businesses, those with less than 10 employees, are the biggest proportion of employers who are unaware of the legislation. The report warned that although employers with less than 30 employees will not be required to comply with changes until at least June 2015, legislation is still liable to change.
A third of business owners are yet to assess the financial implications that auto enrolment may have on their business. Of those who have considered the costs, 12.5 per cent believe they will need to pay for assistance from a third party to help with the enrolment process.
Employers will also be required to contribute a minimum of 1 per cent to their employee's pension scheme, gradually rising to 3 per cent by 2018.
Talking to the Telegraph, Karen Thomson, director of CIPP, said: "While we absolutely support the Government's efforts to encourage people to save for their retirement, our research has indicated that pensions automatic enrolment will subject some businesses to financial burdens that could potentially jeopardise the livelihoods of thousands of British workers."
"Especially during this economically challenging time, making it mandatory for companies to provide pension contributions for all their employees is a lot to ask for and could eat into the profitability of many businesses. In some instances, the consequences could be dire - potentially leading to pay and job cuts or, even worse, the closing down of businesses," She added.
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