The government’s decision to delay introducing auto-enrolment pensions for small and medium sized businesses is likely to be a mixed blessing for the sector, according to a law firm.

The government’s decision to delay introducing auto-enrolment pensions for small and medium sized businesses is likely to be a mixed blessing for the sector, according to a law firm.

Pensions experts at Ward Hadaway say that while delaying the introduction of auto-enrolment pensions for small and medium-sized enterprises (SMEs) with fewer than 50 employees means these employers will avoid compulsory pension contributions for another year, the decision could cause more long-term problems than it solves.

Auto-enrolment is the government policy designed to ensure that all workers are automatically enrolled in a workplace pension scheme and benefit from a minimum amount of employer contributions, unless they decide to opt out.

The initiative will apply to all employers from October 2012 in stages, starting with the largest organisations.

The government has confirmed that the policy will go ahead as planned for these largest employers, but for those with between 2,999 and 50 employees there will be minor delays in the date on which auto-enrolment applies to them (their 'Staging Date')with new Staging Dates to be specified in the New Year.

More importantly, the government has delayed the Staging Dates for businesses with fewer than 50 employees until after the next election in 2015, citing the difficult economic conditions.

Tristan Mander, associate and head of pensions at Ward Hadaway says, 'While this delay may be welcome for SMEs which already have their hands full dealing with the challenging trading conditions, it will add further uncertainty to an already uncertain economic climate.

'Small businesses need to be able to plan for the future with some degree of certainty, and the fact that they now do not know when such potentially huge calls on their cash flow will occur makes planning that bit more difficult.'

There is also a concern that the significant delay in Staging Dates could be a disincentive on small businesses expanding beyond 49 workers in order to avoid triggering a requirement to make pensions contributions.

Mander adds, 'The delay in Staging Dates will also remove an estimated 7.5 million people from the potential client base of the pension providers who have set up auto-enrolment products.'

'At a time when we really need every incentive for small businesses to grow, this is not a helpful move.'

See also: Experiencing financial problems