MPs 'concerned' over pension auto-enrolment for smaller firms

A powerful committee of MPs has raised concerns about the potential burden on small firms from a landmark drive to place people into workplace pensions.

Some 58,000 employers have placed 5.4 million people into workplace pensions as a result of automatic enrolment, which was introduced in 2012 to head off fears of a looming old age savings crisis.

But the Commons Public Accounts Committee said the "real test" for the scheme was beginning as 1.8 million small firms have to enrol their staff, with the MPs warning that these employers have "fewer resources" to cope with the change than larger companies.

The cross-party committee also called for the Government to clarify how smaller pension pots, created as people move between employers, will be treated.

Since the introduction of automatic enrolment in October 2012, almost all larger employers have enrolled their workers in a workplace pension and the proportion of people choosing to opt out has been lower than expected.

But the MPs said the Department for Work and Pensions (DWP), the Pensions Regulator and the National Employment Savings Trust (Nest) faced the tougher task of supporting small firms through the change.

Committee chairwoman Meg Hillier said: "Auto-enrolment is entering a critical stage which will affect 1.8 million additional employers and their staff. It is vital people can understand, implement and have faith in the system."

The report said: "We are concerned about the potential burden on small employers. Smaller employers have fewer resources to administer automatic enrolment and simplifying the process will be critical to the success of the programme."

The MPs recommended that the DWP should keep a close eye on the way the scheme was working and consider ways to simplify the online tools developed to help firms.

The committee also raised concerns that the Pensions Regulator does not have access to "real-time information" that would help smooth the roll-out of the scheme to small firms.

The MPs said the DWP is still to resolve important questions affecting the value of workplace pensions and that "there is a risk that people will be disappointed with their pension if they continue to pay minimum contribution rates".

The committee was also concerned that Nest - the workplace pension scheme set up by the Government - does not know when it will repay the £387 million loan used for its establishment.