< back to articles

Pensions Reform For Employers

The key points surrounding the ongoing employer pensions changes will which affect ALL employers by 2018…..

 

What is the Pensions Reform?

  • Between now and 2018 ALL employers will need to be running an approved pension scheme for their employees.
  • Employee’s aged 16-74 earning under £5,668 per year have a right to join the scheme.
  • Employees aged over 22 (up to state pension age) earning between £5,668 and £9,440 per year have a right to opt in to their company scheme, but DON’T HAVE TO.
  • All employees over age 22 (up to state pension age) earning more than £9,440 per year will HAVE TO be automatically enrolled within 3 months of their employment.
  • Under the new scheme both the employer and the employee will need to contribute a % of the employee’s gross salary to a pension each month.

 

Does it affect me – I’m a Sole Director of my own Limited Company?

  • No. As long as you are the only person on your company’s payroll you are outside the requirements of the scheme.
  • You will quite possibly still receive a letter from the Pensions Regulator informing you of your duties, but you simply need to contact them to advise you are outside the scheme.
  • Do note that if you later employ any other staff you will then need to go through auto enrolment and set up a compliant pension scheme for your staff.
  • If you are one of my clients, contact me when you receive your letter and I will deal with the Pensions Regulator for you.

 

Does it affect me – I’m self employed?

  • No, it does not affect self employed people.

 

So when do I need to have this sorted by?

  • For employers of less than 50 staff the staging dates are between 2014 and 2018.
  • You can find out your exact staging date HERE
  • The Pensions Regulator will contact every employer 12 months prior to their staging date.

 

I have employees earning over £9,440 so will need to auto enrol them. What are the contributions required?

  • Contributions are to be calculated based on the employee’s gross salary over £5,668 per year.
  • The %’s required will increase in 3 stages between now and 2018.
Stage Time Period Employer minimum Contribution Total Minimum Contribution
1 Staging date to 30/09/2017 1% 2%
2 01/10/2017 – 30/09/2018 2% 5%
3 From 01/10/2018 onwards 3% 8%

 

  • The employee’s minimum contribution required will be calculated by deducting the employer’s contribution from the total minimum contribution required.
  • You can find out roughly what contributions will need to be made for your employees by using this calculator.
  • You can run schemes under salary sacrifice arrangements providing that the contributions made each month meet the minimum above. This may be a more cost efficient way for small businesses to meet the scheme requirements.
  • However, employees have the right to choose NOT to enter a salary sacrifice scheme. In this case employers will be required to make the appropriate deductions from salary, and meet minimum contributions as above.

 

That sounds expensive! I don’t want to do it.

  • Unfortunately that isn’t an option.
  • There are penalties for not setting up a scheme starting at a fixed fee of £400 up to fines of at least £50 per day (depending on the number of staff you have).
  • Similarly there are penalties if payments are made late to the pension schemes each month.
  • EVERY employer has to have an eligible scheme set up which ALL staff earning over £9,440 will be enrolled on automatically.
  • If any employee doesn’t want to be part of the scheme they can choose to opt out after they’ve been enrolled.

 

Oooh, opting out, that sounds good – tell me more, maybe I can get my employees to all opt out…

  • DON’T!
  • There are further penalties if an employer encourages employees to opt out of the scheme!
  • The decision to opt out must be entirely the employee’s with no aiding or abetting from the employer.
  • You can’t even give them the form to fill in to opt out, they have to get it themselves!
  • You can read about the process of opting out on the Pensions Regulator website. 

 

The administration side of this sounds like it is going to be a complete pain! Could it not be simpler?

  •  Yes, it is going to be a big administrative burden on small employers. And one which they’re going to have to deal with internally in the main.
  • It’s definitely worth the Directors of small companies getting in touch with the Federation of Small Businesses.  
  • The more companies who raise their concerns about this, the more likely it is that the FSB will be able to work with the Government to try to reduce the administrative burden of the scheme.
  • It won’t stop the scheme from going ahead, but it might just make it bearable in practice!

 

Can I sort all this out for myself?

  • You can use the Pensions Regulator’s website to produce a personally tailored timeline plan of action to be ready by your staging date.
  • There is also plenty of information on the website for employers to check if their existing scheme is eligible, what to do in terms of administration and much more – see Running A Scheme.
  • There is also a video demonstration of how to register (which is done online via the Government Gateway).

 

I really don’t want to sort all this out myself, it’s a little overwhelming! Can you help me set it up?

  • As an accountant I’m not able to give specific assistance or advice when it comes to pensions or other investments under the Financial Services umbrella.
  • However, if you wish to discuss pensions further I can recommend you a financial advisor who will be happy to advise and assist you in setting up an eligible scheme.
  • They will also be able to work with you to find the best solution for your circumstances in terms of meeting the obligations of the scheme whilst minimising cost to the company.

 

Thank you to Hudson Accountants for running the new Money Matters events in Bristol.

No comments yet.

Add a comment

Top