The pension scheme: What it means for your business

pension scheme

Philip Jenkins discusses the auto-enrolment pension scheme and the implications it may have on smaller businesses.

We have heard a lot in the news about Brexit, as well as the National Living Wage. The repercussions of these have already been felt by businesses in the wholesale channel.

Sadly, the problems do not stop there. Small firms – including many wholesalers – will find that this year, a burden of heavier costs will be applied to their businesses, biting into profits and inhibiting their growth, or worse.

High on the list of problems that wholesalers are set to face is the potential increase in business rates that is set to be waved in. This is despite the fact we have been told that small businesses might find their costs reducing.

But when has anything ever gone down in cost?

One of the biggest problems that perhaps does not get mentioned as much as it should do is the auto-enrolment pension scheme coming into effect for businesses, combined with the National Insurance increases that were applied last year.

The problem with the auto-enrolment pension scheme is not just the costs attributable this year, but the associated escalating costs that will cause havoc up until the turn of the decade.

As of this year, businesses have to contribute 1% to the scheme, while the employee contributes 1%. That is the minimum threshold.

But the government has set it so that by 2019, the employer’s contributions will increase to 3%, with 5% then being put into the pot by the employee.

I recognise that there is a need to look after our employees, even after their working lives have finished, and so the scheme does have its merits.

But having said that, the imposition of costs on small businesses as a result of this policy is going to create difficulties, not least in wholesale, as our net margins can be as low as 1%.

We all know what this means: we will have to pass these costs onto our customers and, ultimately, the consumer, which is a difficult thing to do – and succeed in doing – in a value market.

It makes you wonder how much thought the government gives to small businesses when it comes to making decisions like this. It is little wonder that the most recent Smith & Williamson Enterprise Index – a quarterly baro­meter of SMEs – found that less than half of the respondents believed the current government is supportive of private enterprise.

Smith & Williamson says confidence in the government’s policies has been dropping for three quarters in a row now, and decreased by as much as a  fifth in the previous six months.

You only have to look at the recent history of the minimum wage, and how that has escalated over the years with no consideration of the resulting effects on small businesses. The initial level appeared reasonable, but once the minimum wage was legally in place, it increased at a much higher rate than wage inflation. This put considerable pressure on businesses through both the value of the increase, and where applicable, through comparative increases lobbied within small businesses by other employees.

I hope it is not the case, but we must ask: is pensions another area where the government will once again impose a series of cost increases that will prove to be increasingly difficult to claw back through price increases in a competitive marketplace?

Only time will tell.

Philip Jenkins is the MD of buying group, Sugro UK

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Philip Jenkins is the managing director of Sugro, a buying and marketing group for delivered wholesalers with an annual turnover of £870m. It comprises 74 members and more than 1,300 non-fascia stores.


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