Auto-enrolment contribution increase could affect small firms

Employers and employees in small businesses could struggle to comply with an increase in auto-enrolment pension contributions, according to a report by the Association of Consulting Actuaries (ACA).

The total minimum auto-enrolment contribution is scheduled to rise from 2% of earnings to 5% from October 2017 and 8% from October 2018. The minimum contributions for employers will rise from 1% to 2% from October 2017 and 3% from October 2018.

The ACA is concerned that low earnings and the short period of time between small firms’ staging dates in 2015/16 and the rise in minimum contributions in 2017/18 could cause problems.

The report suggests that the next government should launch a review of current auto-enrolment policy after the general election in May.

The ACA survey of more than 400 employers with less than 250 employees and found that:

• the average employer contribution for newly-enrolled employees is between 1 and 3% of earnings
• the average newly-enrolled employee contribution is between 1 and 2%.

David Fairs, chairman of the ACA, said:

“In the near-term government may need to be pragmatic and consider some targeted financial incentives to help deliver the desired policy outcome of wider and deeper pension coverage in smaller firms.”