The Pensions Act 2008, comes into effect in 2012 and will for the first time, place a legal duty on employers to enroll all eligible employees automatically into a pension scheme and contribute towards their retirement.
By planning well in advance, firms can control any potential problems with their cash flow or processes, but according to Sage's UK Omnibus which surveyed 1,500 SMEs from its 800,000 strong customer base, a third (33%) are unaware of their responsibility to provide a Qualifying Pension Scheme as a result of the changes. Meanwhile, 54% of business owners mistakenly believe the Pensions Act will have no impact on their business.
The new pension reforms will impact all UK employees who earn more than the minimum earnings threshold, currently £7,475, and are aged between 22 and the current state pension age of 65. According to the Federation of Small Businesses, a company with four employers each earning £25,000 will face additional costs of £2,550 per year. With cash flow at a premium, this extra overhead is likely to have a significant impact that needs to be planned for now. Businesses will each be informed of a 'staging' date when the change must be implemented by, which is determined according to the size of the firm.
Sage is urging businesses not to wait until they are given this date, but act now so that they can prepare for the changes and have a better understanding of how it will impact their bottom line.
Kathryn Shankland, product manager in Sage's Small Business division, said: "Business owners need to understand how and when this new reform will impact their firm. Even companies that already offer a pension scheme to their employees may still need to change processes, as there is a new minimum requirement that all pensions must adhere to.
"If business owners are aware of the changes early enough and factor them into their plans and forecasts, it's possible for firms to continue to grow their business and provide support for their employees' futures. At the same time, businesses must take the time to effectively communicate the reforms to employees so that they also understand the impact this legislation will have on their finances as employees will have to provide a minimum contribution starting from 1% and rising to 3% by 2017, unless they choose to opt out within three months. With pensions becoming increasingly important to retaining top employee talent, the importance of getting it right cannot be underestimated."