There have been dramatic changes to the way people save for their pensions, especially the role that employers have providing automatic enrolment into workplace pensions, to build pension pot.
The process of setting up new workplace pension schemes, called Auto enrolment, has been ongoing since 2012. Employers of all sizes, from major corporations down to individuals with nannies or carers have to comply.
This our quick guide to your rights and responsibilities if you are an individual employer and just employ one person to help you.
The government’s rationale for the Auto enrolment pension scheme is to plug the gap in pension provision.
Between 2010 and 2012 the Office of National Statistics calculated that 45 percent of men and 49 percent of women in the UK had no private pension provision at all.
Large companies were the first employers required to provide workplace pensions for their staff. Between 2012 and 2014, large, medium and smaller businesses were added to the roll out of Auto enrolment, and now all firms with single employees are also obliged to provide pension cover by October 2017.
If you employ anyone over the age of 22 who is paid more than £10,000 you need to provide them with a pension. The Pension Regulator may have written to you already,most employers are given 18 months notice from the start of the scheme. Even if they haven’t written to you, it is your legal responsibility to understand how your business is affected.
The amount that you will be obliged to pay in pension contributions for your employee(s) depends on the PAYE (pay as you earn) number that HMRC assigns to your employee(s).
If you employ someone (an assistant, shop staff or even nanny for example) you may need to take action now. The government’s regulations are backed up by fines and penalties, so it is important to understand your responsibilities and comply with them by the deadline.
You might already have received a letter with the start date for your first payment into an employee’s pension scheme,
If you are unsure about when you need to start making payments, you can check with the Pensions Regulator.
Initially, you will need to contribute one percent of the employee’s qualifying income. The employee will have to contribute 0.8 percent of their income and the government will add and additional 0.2 percent through tax relief.
Your contribution will rise to two percent in the second year of payments, but the qualifying income is not the employee’s entire salary.
It is any earnings between £5,824 and £42,385, therefore, if you pay an employee £10,000, you will only have to pay a pension on £4176 (10,000 – 5,824), meaning that your contributions will be £41.76 in the first year and £83.52 thereafter.
Many people find the idea of organising pension payments for others daunting and difficult, but fortunately, most good payroll companies who, for a small charge, can organise your regular pension payments. Even if you outsource the task of pensions payments to an agency, the cost will still be born by you.
Setting up your scheme is less simple. You need to demonstrate to the Pensions Regulator that you have reviewed more than one scheme to find the best one for your employees. Accountants aren’t regulated to offer pension advice and very few have the professional indemnity insurance in place to cover you if things go wrong.
Call us today for an initial conversation at our expense about how to start getting ready for Auto enrolment.