pension-fundA new survey has revealed a significant increase in awareness of auto-enrolment among employers since its introduction in October 2012.

However, the research conducted by the Institute of Directors (IoD), found that many businesses feel that the new contributions will hit their profits, with some being forced to cut or freeze salaries.

The survey of 1,327 bosses revealed that 98% are aware of the requirement to automatically enrol nearly all staff onto a pension scheme to which the employer had to contribute. This is a large rise compared to the last time the IoD posed the question in 2011, when 20% said they were not aware of the legislation.

The process of auto-enrolment is being introduced in stages, affecting the smallest employers by 2017, and the survey found that 62% of businesses said they were confident that they were prepared to enrol their staff when they hit their staging date, compared to 15% who were unconfident.

It also found that readiness varied by the size of the business; with 79% of directors of large companies (250+ employees) stating that they were confident, while only 54% of those from small firms (up to 49 employees) said the same.

Despite these relatively positive figures, when asked ‘How do you expect to meet the cost of automatic enrolment into pensions?’ a fifth responded by saying that they would have to freeze or cut salaries to find the money.

It also revealed that 3% reported they would be forced to make redundancies.

Commenting on the findings, Malcolm Small, Senior Pensions Policy Adviser at the IoD, said:

“Auto-enrolment is a new challenge for business, both in terms of costs and logistics. It’s positive that nearly all businesses know that they will have to set up a pension scheme for staff over the next few years, and that most feel ready for it.

“However, we still don’t know how small firms are going to handle the burden – nearly half still feel unsure about the process, and many don’t know if their staff are going to drop out.”

The survey, which was carried out between 16 and 26 January 2013, also questioned IoD members on their views on retirement saving.

While pensions remain dominant, directors expressed dissatisfaction with elements of the system and are increasingly looking to other forms of saving, the survey found.

Malcolm Small added:

“While pensions are still the dominant method of saving, our members are increasingly looking elsewhere to provide for their retirement.

“The rigidity of pensions and poor annuity rates have created resentment among many, who are choosing to supplement their income with more flexible forms such as ISAs. Tax relief is still an advantage, but very few believe the pensions system is currently fit for purpose. These figures make the case for radical simplification.”