A worrying number of the UK's small firms and micro-businesses are completely unprepared for the auto-enrolment pension process, according to two new research studies.
A survey by Intuit of micro-businesses - which account for 96% of all UK firms - has found that 65% don't know their staging date and only 33% can accurately describe auto-enrolment (AE) legislation. Yet most micro-businesses will have to go through the process in the coming year.
The survey also found that many micro-businesses are significantly underestimating both the cost and the time involved in complying.
According to Intuit, auto-enrolment costs are estimated to be £8,900 per small business; however, 40% of respondents either don't know or don't think it will cost anything to set up the process for each employee.
In addition, 85% of those polled think it will take 50 or less days to implement - despite the fact that it typically takes an average of 103 days for SMEs.
One in three say they will offset the cost by capping staff salaries or bonuses. One in five say they will reduce employee benefits. Over half of the business owners polled (56%) said they would be tempted to encourage staff to opt out of the scheme if they were unlikely to be found out by The Pension Regulator.
Meanwhile, a survey of pension experts conducted by Defaqto for NOW: Pensions has found that 84% of advisers are concerned that employers "lack the knowledge to make informed decisions on the appropriate auto-enrolment solution for their employees".
Morten Nilsson, ceo, NOW: Pensions, said: "The vast majority of small and micro employers will have absolutely no experience of pensions and will be facing auto-enrolment with a mixture of horror and dread. The advisory community has an essential role to play, guiding employers through the process and helping to ensure that the schemes they select for their employees are fit for purpose."
Nilsson warned that many SMEs may find that they have been enrolled in an unsuitable "default fund" if they don't get the right advice. "We know that over 99% of auto-enrolment members are finding themselves in the scheme default fund so it's imperative that advisers interrogate the appropriateness of these funds," he said. "It's a mistake to think that all default funds are the same as they have very different risk and return profiles."