Pension Auto Enrolment

You may have seen the recent TV adverts about all employers having to auto-enrol all their employees into a company pension scheme. As this will eventually affect you I thought I would let you have more information as to what will be required.

All employers are having to auto-enrol all eligible employees into a qualifying pension scheme, even if they only have one employee. The start date will depend upon the number of employees but will start applying to small employers from 2016.

2016 may seem a long  way off but it will be wise to start thinking about what you are going to do as there is likely to be a shortage of financial advisors and the pensions providers will have difficulty in processing so many applications if all employers leave it until the last minute to apply. Financial advisors I have spoken to are advising that it may take up to a year to set up a scheme.

Workers will be eligible if they are aged between 22 and the state pension age and earning enough to pay tax. Employees can opt out within one month of being auto-enrolled but it is an offence to encourage people to opt-out and is punishable by large penalties. By 1 October 2018 minimum contributions will be 8% of which the company will pay 3%. Employees under 22 or over the pension age are classified as non-eligible but may opt to join the scheme voluntarily.

It is the employers responsibility to assess and provide an appropriate scheme. The government’s intention was that you could either set up a company scheme with an independent pension provider or use the government scheme, the National Employment Savings Trust (NEST). However I have heard that pension providers are only interested if there is a sizeable workforce with an average salary of £20,000 pa. If this is correct it will limit your alternatives to using NEST. I am aware of one scheme open to small employers which is offered by the Federation of Small Businesses and Scottish Widows (this is only available to FSB members and costs £299 + VAT). Do you have a financial advisor that you can talk to about setting up a company pension scheme as I am not licensed to give such financial advice?

Once the scheme has been set up there are on-going administrative requirements and there are substantial penalties if these are not adhered to.

Employers must:

–          Assess all workers as to whether they are eligible and notify all employees of their rights

–          Notify employees of the date from which they will be auto-enrolled , especially if there is a waiting period for new employees

–          Notify non-eligible employees that they are not auto-enrolled but that they may opt to join the scheme

–          Notify the chosen pension provider with workers names, gender, age, auto-enrolment date, address and details of pensionable earnings

–          Monitor the status of workers as non-eligible employees must be auto-enrolled as soon as they become eligible

–          Calculate employer and employee contributions based upon their salary and pay over pension contributions by the due date

I am assured that the Sage payroll software we use is being adapted to provide the necessary information to meet these requirements, but someone will have to use this information to issue the necessary letters and notify the pension provider of changes. We will assist in dealing with the administration but cannot be held liable for any non compliance penalties.

You therefore need to making some decisions as to:

–          Will you use a financial advisor to set up the scheme?

–          What pensions provider to use?

–          Will you take the additional pension contributions into account in reviewing any wage increases?

–          When will you start the scheme and will you pay more than the minimum contributions?

–          Will you have a waiting period for new employees?

–          Who will handle the administration of the scheme?

I have spoken to several financial advisors who are charging between £1500 to £3000 for helping to assess appropriate pension schemes and assist in the implementation which seems excessive given how many workers you have. I will keep you informed but please contact me if you have any questions.

Autumn Statement

George Osborne delivered his Autumn Statement last Thursday. He was keen to announce that the government’s economic plan was working, that growth is higher than expected and consequently borrowing was less than forecast. Whether you agree with his analysis may depend upoan your politics but very few people I have spoken to expect their financial position to improve in the near future.

There had been some speculation about pre-election tax giveaways but the chancellor has decided not to change course. Consequently there will be more cuts to public spending and relatively few changes to tax legislation.

The main highlights were –

* The personal allowance will increase to £10,000 in 2014/15. The income tax higher rate (40%) tax threshold will increase by £415 to £41,865.

*The introduction of a transferable tax allowance of £1,000 for married couples and civil partners from April 2015. This can potentially save £200 tax where one partner earns less than the basic personal allowance, provided the recipient of the transfer does not pay income tax above the basic rate.

* From 6 April 2015 employers will no longer pay Class 1 national insurance contributions on earnings paid up to the upper earnings limit to any employee under the age of 21.

* In October 2015 a new class of voluntary NICs (3A) will be introduced to allow pensioners who reach state pension age before 6 April 2016 to top up their Additional Pension entitlement.

* ISA subscription limits for 2014/15 will rise to £11,880, of which £5,940 can be invested in cash.

*The Capital Gains private residence relief final exemption period prior to sale will be halved to 18 months from April 2014.

* From April 2015, capital gains tax will apply to future gains on residential property owned by non-resident individuals. This brings them into line with UK residents who had to pay capital gains tax on such gains.

* The small company rates relief is extended to April 2015. Increases in business rates are capped to 2% for properties not eligible to the small business relief.

* The investment limits for share incentive plans are increased to £3,600 for “free shares”.

* Increases in the age for receiving the state retirement pension

* Cancellation of the planned fuel duty rise

* Amendments to anti-avoidance legislation to block the growth of intermediaries disguising employment income as self-employment.

It is very unlikely that all these announcements will apply to you, but if you have any questions I would be happy to discuss them with you. Please call 01455 557270.