I am cautiously welcoming the Government’s concessions to small businesses over pension reform.
Yesterday (Tuesday, 12 January 2010), the Secretary of State for Work and Pensions, Yvette Cooper announced what she called “the most radical change to workplace entitlements since the introduction of the national minimum wage”.
From October 2012, it will be compulsory for businesses with more than 120,000 staff to pay into a national pension scheme for their employees.
When the reforms were first announced in 2006, following the Turner Report a year earlier, it was feared that businesses of all sizes would be forced to pay identical compulsory pension contributions at the same time, giving small firms no time to adjust to the additional expense and red tape.
A survey carried out by my company following the initial announcement revealed that 70% of respondents were concerned they would not be able to afford the original proposals and believed they would damage their businesses.
In all, 64% said introducing compulsory pension contributions would prevent them from employing more people, 42% said they would prevent them investing in their businesses. Just 13% said the proposals would have no impact.
Arguments made by FPB members surveyed included that private businesses were increasingly subsidising an over-inflated public sector, that compulsory pension contributions amounted to an additional tax and that the reforms would force them to make redundancies.
However, following today’s announcement smaller firms are being given some breathing space. Businesses with fewer than 50 employees will not be forced to comply until 2016.
In addition, the minimum employer contribution – which is set to rise to 3% by 2017 – is being staggered to give small businesses time to adjust. Initially, it will start at just 1%.
Following the Turner Report’s publication a committee of MPs was appointed to seek the views of employers’ organisations, economists and business groups including the FPB.
We were listened to and our initial fears that these compulsory pensions contributions would hit small businesses too quickly for them to adjust have to some degree been addressed. However, there remain serious concerns that small firms, which comprise more than 99% of all businesses in the UK and account for 59% of the private sector working population, will ultimately bear the brunt of the pensions crisis and that job creation will suffer as a result.