The auto-enrolment scheme will start in October 2012 and will mean that all employers will be required by law to enroll their employees into a pension and make contributions to it on their behalf.
The employer’s contribution will be a minimum of 3 per cent of the employee’s salary and workers will have the chance to opt out if they wish. The move is aimed at cutting the ballooning private sector pensions deficit.
The survey also revealed that the burden is likely to fall hardest on small firms. Currently 95 per cent of firms that do not have any pension arrangements for employees into which the employer contributes are SMEs.
Commenting, Miles Templeman, Director-General of the IoD, said: “The Government shouldn’t underestimate the cost burden that auto-enrolment is going to place on small firms. Bigger businesses will mostly have pension arrangements for employees set up. Of course we need to improve retirement provision in the UK, but yet again it’s the small entrepreneur who is hit.
“Since the Government isn’t prepared to change course on what’s essentially a major piece of employment regulation, it needs to compensate for this burden with an equally significant deregulation elsewhere. Phasing in auto-enrolment buys us some time, but the private sector can’t be expected to bounce back and create new jobs in the longer run if the Government keeps dropping new cost burdens on firms.”
The survey found that a third of companies would freeze salaries to pay for the scheme, while 9 per cent would cut wages. Some 34 per cent said they would have to pay for contributions from profits, heaping financial pressure on already cash-strapped businesses.
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