Britain’s small businesses are sleepwalking towards a pensions disaster. Thousands are missing the legally binding deadlines by which they must introduce occupational pensions for staff – and many will face expensive fines and penalties as a result.
Auto-enrolment, the regime that requires all employers, no matter how large or small, to offer their staff a pension scheme, to enrol all those staff who don’t expressly opt out, and to make contributions on their behalf, is being introduced over a period of about six years.
The gradual roll-out, with smaller businesses given more time to prepare, makes sense. But it has had one unfortunate consequence: since the first 18 months or so of the regime, which began in the autumn of 2012, involved only relatively large companies, most of which already had pension schemes that met most of the auto-enrolment requirements, a false sense of security has developed. These businesses have found it painless to make the transition to the new rules, so the assumption has been that everyone else would too.
But hundreds of thousands of small businesses are now reaching their deadlines to begin complying with auto-enrolment. Many have never before offered any kind of pension provision, let alone been required to pay into schemes. They don’t have the know-how, experience or resources to comply with auto-enrolment and many are leaving it far too late to sort themselves out.
The alarm bells are ringing. Last week, the City solicitor Irwin Mitchell reported that significant numbers of the 12,000 or so businesses with between 62 and 89 employees – the firms that were supposed to begin auto-enrolment on 1 July this year – had taken up their right to ask for a three-month extension. Many of those companies, the law firm added, subsequently missed last week’s final deadline and are now vulnerable to fines from the Pensions Regulator.
There will be many more such failures. The latest research from the regulator, published in September, suggests that one in five small employers – and half of all “micro employers” with only a handful of staff – don’t even know when they’re supposed to be compliant. Its pleas to small employers to give themselves at least 12 months to prepare for auto-enrolment are largely falling on deaf ears.
Nor is there much hope of getting on top of the backlog. The pensions industry – both auto-enrolment scheme providers and the consultants that work with employers – is struggling to cope with the demand for its services. Implementations are taking longer to complete. And, while they may not admit it publicly, many pension companies aren’t interested in the business of the smallest employees – there’s not enough money in it for them.
The fines for non-compliance are potentially swingeing. The Pension Regulator’s website lists a dizzying range of penalties, with fines that escalate the longer that non-compliance continues, threats of legal action against offenders, and even warnings that criminal prosecution is possible in the worst cases.
Small businesses shouldn’t count on policymakers taking pity on them. For one thing, organisations with fewer than 50 staff have already been given an extra year – a concession made right at the beginning of the new regime, when ministers were panicking about the recession. With the UK now in a seemingly sustained economic recovery, there will be no repeat of this largesse.
In short, the only option for small businesses is to roll up their sleeves and get on with it. A certain amount of hand-holding is on offer from the regulator, but the complicated work of finding a scheme provider, setting up the right administrative systems, consulting employers and complying with all the red tape is down to employers themselves.
Unfortunately, all the evidence suggests that huge numbers of smaller businesses have not yet recognised the scale of the challenge, or the potential costs of failure.
Deals at two-year high on AIM
The recovery of the Alternative Investment Market continues, with London’s junior exchange having just posted its most impressive mergers and acquisitions data for more than two years. There were 13 M&A transactions involving AIM-listed companies during the third quarter, the highest figure since the first quarter of 2012.
High-profile transactions included Blackstone Real Estate’s £448m takeover of Max Property, the property fund set up Nick Leslau, and the £63m deal that saw the Israeli software provider SintecMedia buy Pilat Media.
Laurence Sacker, a partner at accountant UHY Hacker Young, said the calibre of AIM transactions was also improving. “AIM hasn’t seen this level of high-quality M&A activity since the credit crunch,” he said.
Just 18 companies left the market due to insolvency in 2013-14, down from a peak of 82 in 2008-09.
Growth Fund piles into shares
The £10m investment in Victoria, the AIM-listed carpet manufacturer, announced last week by the Business Growth Fund (BGF) marks a new departure for the organisation. BGF was set up in 2011 with about £2.5bn of money from Britain’s five biggest banks, and has a remit to take private equity-style minority stakes in growing businesses. It has subsequently backed more than 60 such businesses, but Victoria is its first listed investment.
At first sight, the deal looks curious – the principle underlying BGF has always been that many private businesses struggle to attract the funding they need to fulfil their potential, so financing a business that has already accessed the capital markets seems odd. However, BGF argues that there are many Aim-listed businesses that are being held back because raising money via a rights issue isn’t appropriate for their circumstances.
Small Business Person of the Week: Alan Ryder, Chief Executive, RSK
“This is a milestone year for us: our 25th anniversary. The business began when I was a PhD student in Aberdeen working on the environmental impact of pipelines – my PhD superviser and I were asked to advise Shell on a pipeline it wanted to build from Grangemouth to Stanlow, so we set up a company to do that. That job lead to the next job and very quickly we became the company to come to for that kind of advice.
“The next big step forward for us came in 1994 when BP asked us to work with it in Azerbaijan – that was our first overseas venture and today we’re working all over the world. It hasn’t always been easy – we struggled during the recession and had to make some cutbacks, but business has gradually got better since 2011. We had sales last year of £72m and this year it will be more like £100m.
“I spend a huge amount of my time in Basra in southern Iraq, where we’re working on clean-up projects in the desert sand with several oil companies. It’s not glamorous, but I’m here because of the work.
“We have made acquisitions in the past, including a recent one in Germany, but for the time being the future for us is organic growth – we’re a home-grown British business that does a third of its sales in export markets and we think there are many more great opportunities to exploit.”Reuse content