Relief for small businesses on pension simplification

Small businesses around the country are breathing a collective sigh of relief after Yvette Cooper’s recent announcement on pension provisions.

The Pension Simplification initiative that was unveiled in 2006 was far from simple. So when the scheme alluded to a new rule that private employers must contribute to a national pension fund on behalf of their employees, small businesses held their breath to see what the detail of the plans would involve. They feared that the administrative costs and red tape involved would have a severe impact on their profitability.

The Forum of Private Business commissioned a survey on the impact of the proposals in 2006, the results of which revealed the strength of feeling among the small business community. 70% of those questioned feared the new scheme, with 64% of respondents claiming that compulsory contributions would stop them taking on any new employees at all. 42% claimed that the proposals would hamper investment into their businesses. So did Ms Cooper listen to them?

She has provided for a gentle introduction to the scheme for SMEs. Businesses with fewer than 50 employees have until 2016 to comply with the rules. And the minimum employer’s contribution will be staggered, starting at 1% and rising to 3% over the next 10 years.

This has provided the business community with some comfort. Joanne Segars, Chief Executive of the National Association of Pension Funds appreciates the “more pragmatic approach they have now taken.”

However, the CBI is concerned that the rules may still be too complex. Their Director of Employment Policy Katja Hall said that the government “needs to ensure it does not make the system too onerous for companies who are already doing more than the law will require, or it could encourage them to cut contributions to the legal minimum.”

On another note, it was reported earlier this week that Harriet Harman planned to abolish the default retirement age, in favour of allowing older workers to continue their employment for as long as they felt able. A couple of days later, business leaders were treated to a letter that proved that the left hand had not told the right hand what it was up to. Peter Mandelson, head of the Department for Business Innovation and Skills denied that the government had any firm plans to tinker with retirement policy. He did however concede that a review of the subject is forthcoming.