How Pension Changes Affect Everyone
In the past three years there have been dramatic changes to the way people save for their pensions in the UK and the role that employers have in helping them to build up a pension pot.
The process of setting up new workplace pension schemes, called auto enrolment, has been ongoing since 2012 and employers of all sizes, from major corporations down to individuals with nannies or carers have to comply.
This blog is a quick guide to your rights and responsibilities if you are an individual employer and just employ one person to help you.
What Is Auto Enrolment?
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 who were required to provide auto enrolled 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 in 2015 individuals with single employees are also obliged to provide pension cover.
Do I Need To Contribute Towards My Nanny's Pension?
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 Government has sent letters to those affected, but still, many people are unaware of their legal responsibilities.
Employers with 1-30 members of staff will go through the auto enrolment process over the next two years, and by October 2017 all employers will be expected to have made provision for their staff.
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).
What To Do
If you employ someone (a carer or nanny for example) you may need to take action.
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, most employers are given 18 months notice from the start of the 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 there are numerous payroll companies who, for a small charge, can organise pension payments. Even if you outsource the task of pensions payments to an agency, the cost will still be born by you.