Smaller companies need to do more to boost the numbers joining their pension scheme, according to the latest analysis of figures from the Department of Work and Pensions.
Their data shows that 20 per cent of those working for an SME (with less than 50 employees) were not savings into a workplace pension. This is equates to just over 800,000 employees.
The data shows that 12 per cent of those working for larger SMEs, employing between 50 and 249 people, are also failing to joining the workplace pension scheme, equivalent to a further 374,000 workers.
Pension consultancy Broadstone says this indicates that more than 1.2m eligible employees are slipping through the auto-enrolment net, and that SMEs need to do more to promote the benefits of workplace pensions. It says there are far lower opt-out rates among larger corporations.
Broadstone points out that this is the second successive year that pension participation has stalled at the UK’s smallest employers, with one in five workers effectively missing out on ‘free’ contributions from their employer as well as tax relief on these savings. As a result many of these SME employees will run the risk of a lower income in retirement which is likely to affect their standard of living.
These DWP figures also demonstrate the benefit to employees of participating in a workplace pension scheme – in total, employers in the private sector contributed £37.5 billion with employees gaining from a further £7 billion through tax relief.
Broadstone head of pensions and savings Rachel Meadows says: “Workplace pensions are a fantastic way for workers to save in a tax-efficient way and even get free money from their employers and the government.
“However, it is clear that employees at smaller organisations are falling through the cracks at a greater rate than among larger employers. This is perhaps because these businesses are less likely to have a plan in place to communicate the need to start accumulating pension savings for later-life.
“Boosting pension participation among colleagues is a key duty of employers in a post auto-enrolment environment as it is critical to protecting the long-term financial future of their colleagues. There is a benefit for smaller businesses too – it helps them attract and retain talent if workers know their employer is achieving best-practise standards in line with bigger organisations.
“Employers should be taking steps to increase communications and provide sources of guidance on the benefits of pension saving to make clear the responsibilities individual pension savers bear as well as the vast financial contribution that employers and the government will also make. With pensions being one of the biggest employee benefit costs for most employers, allocating a small extra spend on boosting staff knowledge can reap a big reward.”
