Small businesses are to be given an extra year before they have to start enrolling their employees into workplace pension schemes.
The move will apply to firms employing less than 50 staff and is being portrayed as a boost for business. More than 44% of the entire UK workforce – the equivalent of about four million people – are thought to work in companies of this size.
Larger organisations will still be obliged to automatically enrol their employees into pension schemes from October next year, but the deadline for small firms has now been shifted from April 2014 to May 2015.
But the Pensions Minister Steve Webb told the BBC that, despite the delay, all employers would have to bite the auto-enrolment bullet eventually.
"We recognise that small businesses are operating in tough economic times so we are softening the timetable for implementation to give them some additional breathing space," he said, adding that the Coalition Government was, however, "committed to ensuring the employees of these small businesses get the chance to save, and that is why no one will miss out".
The policy change came about following the publication of a report for the Coalition Government written by venture capitalist Adrian Beecroft, which recommended that auto-enrolment be delayed. The move was welcomed by John Longworth, director general of the British Chambers of Commerce.
"Pension auto-enrolment imposes huge costs on business, with the Government’s own estimates suggesting it will cost employers over £4.5 billion per year," he said. "Since smaller businesses will now not be required to auto-enrol their staff in pension schemes until the next Parliament at the earliest, the Government has an important window of opportunity to pare back the costs they face when they do join the system."
But Joanne Segars, chief executive at the National Association of Pension Funds, said she was disappointed by the change. "Small businesses are absolutely critical to making these reforms work because their staff are the least likely to have a workplace pension," she said.
Charles Cotton, rewards adviser at the Chartered Institute of Personnel and Development, was equally downbeat. "This is dressed up as a ‘win’ for hard-pressed small businesses, but could cost the small business sector of the economy dear in the long-run", he said.
While some might take the opportunity to offer workplace pensions anyway to promote themselves as "decent places to work", the downside was that "the whole small business sector could start to pick up an image as a ‘low-grade employer’, deterring the brightest and best for working in what should be the engine room of our economy", Cotton added.
