Many firms are on a collision course with the pensions regulator over auto-enrolment

Who will blink first? The announcement last week that MPs on the Work and Pensions Committee are to investigate the impact of the auto-enrolment pension reforms on small businesses reflects the increasing panic that large numbers are about to fall foul of the law. But will the Government extend the deadlines for compliance for the smallest businesses, or will employers (including those who remain blissfully unaware of their responsibilities) be told to get their act together or else?

It’s certainly crunch time. On 1 January, employers with fewer than 30 members of staff must begin the detailed work of auto-enrolment compliance, which requires them to have an occupational pension scheme of a certain quality available to staff, to automatically enrol staff in the scheme unless they have specifically opted out, and to make contributions on staff’s behalf. This is the final stage of the project. By April 2017, every employer, no matter how small, must be up and running with auto-enrolment.

The Pensions Regulator suggests that six to 12 months is a realistic timeframe to get a scheme in place, while some experts reckon 18 months is a sensible basis for planning.

What is for sure is that many very small businesses are going to miss their deadlines – indeed, this is already happening. Research published in October by Now: Pensions found that 10 per cent of small businesses were already missing their deadlines, with a further 25 per cent hitting the mark by the skin of their teeth.

We can expect those figures to deteriorate as the smallest employers have to comply. These are businesses that lack specialist payroll and human resources staff, don’t necessarily have access to external advice, and, in many cases, don’t even know what they have to do. The pensions industry, meanwhile, isn’t particularly interested in these low-margin clients – many may struggle to find a scheme provider.

The evidence so far has been that as more smaller employers have reached the deadlines by which they must comply with auto-enrolment, the number of cases of non-compliance has risen steadily.

Over the three months to September, the latest period for which data is available, the Pension Regulator issued 469 compliance notices to employers that failed to meet their auto-enrolment duties on time, a fourfold increase on the previous quarter, when just 119 companies were censured.

Worse, 107 companies were issued with fixed penalty notices requiring them to pay £400, while two employers received escalating penalty notices. These carry a daily fine of between £50 and £10,000, with the penalty adding up each day that the employer continues to fail to comply with the auto-enrolment regulation.

Small businesses should not expect much sympathy from the watchdog. The Pension Regulator has no mandate to treat smaller employers less harshly than larger firms – indeed, it has ruled out doing so.

The alternative is for the Government to intervene – possibly at the urging of MPs now investigating auto-enrolment. But ministers have already made some adjustments, such as putting back the date when minimum contribution rates for employers are due to rise, but extending the auto-enrolment deadline would be more challenging. Not least, thousands of employers that have managed to get auto-enrolment right would be unfairly disadvantaged.

There are now 3 million additional people saving for retirement via an occupational pension scheme than there were when the process began in 2012. At the tail end of implementation, however, there is a major problem. Large numbers of employers are on a collision course with regulators and a government that needs to work with small businesses rather than spend its time explaining why so many are being fined and penalised.

Small businesses fear extreme weather more than any other potential threat in 2016, research from Barclays Bank reveals. Almost one in four said they feared that events such as recent flooding, could hit growth next year. By contrast, only one in five said they were concerned about funding constraints, while even fewer cited threats such as competition or a rise in interest rates.

More positively, 39 per cent believed better technology would help their growth in 2016, while a third were expecting demand to rise. A quarter expected more export opportunities.

Rebecca McNeil, head of SME lending at Barclays, said: “It is encouraging that many SMEs recognise the importance of technology for their growth. It is essential that businesses are given the support, tools and guidance to enable them to embrace opportunities to maximise growth.”

Providers of asset-based finance to small and medium-sized enterprises should declare an APR showing the true annual cost of the debt, just as lenders to consumers must do, campaigners say. The Campaign for Regulation of Asset Based Finance describes SME finance as “the next financial scandal in the making,” pointing out that large chunks of the sector are exempt from the sort of protections normally offered to consumer borrowers.

Asset-based finance, in which SMEs take on debt against assets ranging from plant and machinery to unpaid invoices, is at an all-time high, says the Asset Based Finance Association. But while new sources of SME funding have been welcomed, some fear businesses are vulnerable to exploitation. “Some lenders hide the true cost of this credit by advertising products using prices that either fail to include fees, or use rates for periods shorter than one year,” warned James Sherwin-Smith, chief executive of Growth Street, who is backing the campaign. “The lack of price clarity means firms are paying more than they should.”

We saw an opportunity to break into a market where there are some big players that are charging too much: we looked at what the RAC was providing for around £170, and what the AA offered for around £130, and we worked out we could do it for £34.99. That tells you something about the margins they have been enjoying.

They are established brands and we accept that it’s a challenge to break into that. But we’re not new to this market: RecoverMe’s parent company, Auto Rescue Logistics, has been trading since 2002 and provides breakdown and recovery services to some of the country’s biggest insurers and fleets; in fact, our network of operators across the UK is bigger than the RAC’s and AA’s combined.

We see ourselves as disruptors that have come into the market offering a product at the right price. But it’s also about service in this industry, so we’ve built products that reflect that – we’ll never leave you stranded at the roadside, for example, and we’ll provide you with a replacement car if we can’t get the problem sorted on the same day.

We’ve built an app that will connect drivers with our call centres so that we can get to you even more quickly when you need help.

We’ve made good progress with RecoverMe – Which? magazine said very good things about us at the start of the year, which has really helped, and we’re developing both through the direct model and through partnership deals and white label products. This is definitely a market in need of disruption.