Embrace a change for the better
KEEPING on top of shifting regulations can be a nightmare for businesses, especially when the details are technical or difficult to understand. But the latest changes to the rules around autoenrolment for workplace pensions couldn’t be clearer. From April 6 total minimum contributions to pensions increased from 2 per cent to 5 per cent (minimum contributions from employers doubling to 2 per cent). And from April 2019, total minimum contributions will rise to 8 per cent, with employers contributing 3 per cent of that.
This is a significant change, and one that I think should be welcomed. But the impact of minimum pension contributions tripling from 1 per cent to 3 per cent in just over 12 months is something that employers need to be prepared for.
Looking at aggregate data provided by businesses borrowing through Growth Street, an increase in minimum pension contributions from 1 per cent to 2 per cent could have a significant effect on net profits, reducing them by around 5 per cent. Effectively, £1 in every £20 of net profit from those businesses could be redirected towards pensions for employees.
I’m passionate about helping SMEs find ways to grow. It’s wellknown that reinvesting profits back into one’s business is a great way to stimulate further growth, and if auto-enrolment leads to businesses having fewer profits to reinvest, planning sensibly is going to be more important than ever.
It’s been reported that businesses have been less keen to reinvest profits after the UK’s vote to leave the EU. If this is the case, performance in key sectors like manufacturing may ease business owners’ worries somewhat. I don’t want employers to be scared of reinvesting profits back into inventory, machinery, training, equipment – or anything else directed at future growth. I want to hear from businesses putting their auto-enrolment plans in place.
Are you prepared? Let me know via greg@growthstreet.co.uk: I’m sure your responses will make for interesting reading. Greg Carter is CEO of Growth Street Sponsored column www.growthstreet.co.uk