Mon, 1 Aug 2011

DRA takes second place to pensions

Small businesses are more concerned about automatic enrolment into pensions affecting their finances than the abolition of the default retirement age (DRA), despite it meaning employers have to pay employee pension contributions for longer.

The issue of continued pensions payments was raised at the Chartered Institute of Personnel and Development’s Employment Law conference last month by audience members who expressed concern over increased payouts.

Employers have been unable to retire staff when they reach the age of 65 since 5 April this year, and are legally obliged to continue paying monthly pension contributions until employment is terminated.

According to Office of National Statistics figures, in 2008 employers contributed 16.6% of salary for defined benefit schemes and 6.1% of salary for defined contribution schemes, which for end-of-career salaries could add significant costs to the monthly payroll.

But smaller business employers, who are less likely to offer pension schemes, have said auto-enrolment presents them with a greater cost increase.

A spokesperson from the Federation of Small Businesses said its members had voiced concerns over the incoming legislation. ‘We know from our research that small businesses tend not to have a pension scheme for their employees, mainly because they do not understand or have confidence in choosing them, so the main concern for small businesses will be once auto-enrolment into a pension scheme comes into force,’ she said.

‘We already know this will cost small firms at least £2,500, so paying this indefinitely could be a strain on small firms’ cashflow.’

Members of the Forum of Private Business have also reported confusion about auto-enrolment, which will be phased in from October 2012.