Pension plans could prove costly

The new automatic enrolment pension scheme, which is due to be phased in from 2012, could prove expensive for smaller firms, it has been claimed.

Under the plans, by 2017 all employers will have to enroll their staff in a workplace pension fund, unless employees opt out or are already members of a qualifying scheme.

Employers will be expected to pay a minimum of 3 per cent of an employee's salary into the pension. 

But the Federation of Small Businesses (FSB) has said that the changes could end up costing the average small firm - one with four employees earning an average salary of £25,000 - an extra £2,550 per year in administration and pension costs.

The government has calculated that the administrative cost to very small employers will be £46 per each of four employees.

However, the FSB has questioned the calculation, describing it as a gross underestimation and wants the government to publish an impact assessment immediately. 

The FSB's view is that micro firms should be exempt from the scheme. While conceding that measures have been put in place to ease the administrative burden for small businesses, the FSB expressed concern that they do not go far enough.

The FSB has also urged the Pensions Regulator to adopt a light-touch approach towards smaller employers when the rules come into effect, and to communicate clearly and effectively with small businesses on what the new regulations will require of them.

Mike Cherry, policy chairman at the FSB, said: "It is vital that everyone is able to save for their future, but the automatic enrolment scheme is going to cost the smallest businesses dear.

"While the government has made the enrolment process easier for micro firms, it is going to cost them at least an extra £2,550 a year. The true administrative costs, however, are unknown and could be extortionate. We are calling on the government to publish a proper impact assessment immediately to shed the true light on just how much these changes will cost small businesses."