Auto enrolment- work place pensions

There is a lot of confusion with work place pensions and we are regularly being asked by employers to explain the process and answers questions they have. So to help, we have compiled a short list of questions and their brief answers below:

What is Work Place Pensions?
A work place pension is a new compulsory government scheme to lighten the burden upon the state pension. It is part of the process of extending the retirement age and pushing away some financial responsibility onto employers away from the state. It is another way that employees contribute to a  pension scheme separate from just the normal national insurance contributions to a state pension. The work place pension is arranged by an employer and they and you have to both contribute into if you decide to opt in.

What is auto enrolment?
Automatic enrolment  to gives it full name, is the the compulsory way the Government has forced employers to set up a company pension scheme for employees. As the name suggest it makes it compulsory for an employer to automatically enrol all their eligible workers on their PAYE into a company pension scheme.

What is the staging date?
This is the date that the automatic enrolment duties begin. the staging date for an employer is worked out by the number of employees on their payroll (PAYE) based on information HMRC holds. The staging date has been set in law and is the date an employer needs to make sure their automatic enrolment duties have started.

Which employees have to be on a work place pension?
Only those employees that are over 22 years old and earn more that £10,000 per tax year, need to be enrolled on the work place pension.  Anyone earning less than £10,000 a year on your PAYE does not have to be on the work place pension.

How does is it work?
Its like a normal company pension scheme, only difference is that the Government adds a little bit to it as well. An employer has to register and then choose a pension provider and then deduct a minimum of 2% (on a scale) from the employees wages each time a payslips is produced. The employer then adds an equivalent percentage (up to a maximum threshold) and then pays both the employees and employers pension payments to the pension company each pay date. The Government then tops this up with a lesser percentage. The total sits in a pension account for the employee until they reach retirement age and can then receive the pension payments at the required retirement age.

Can employers and employees opt out?
All employers have to register and be compliant with their legal obligations. But both directors and employees can 'opt out' of the work place pension scheme if they wish. If an employee wants to opt out then they need to fill in and sign an 'opt out' form and hand this to their employer.

What are the costs?
For an employee: Minimum 0.8% of an employees ‘qualifying earnings’, rising over time to 4% by April 2019
For an employer: Minimum 1% of your employees ‘qualifying earnings’, rising over time to 3% by April 2019
What is paid by the Government: 0.2% of your employees ‘qualifying earnings’, rising over time to 1% by April 2019
Plus the employer may have to pay a management charge to the pension company for managing the company pension scheme (varies with each company). And / or for the employees an annual pension management charge of 0.3% of their retirement pot, and a 1.8% charge from each payment that is made into an employees retirement pot.

What is the earlier age an employee can start to get their pension paid to them?
This differs from one pension company to the next and depends on the pension company used by the employer, but most pensions can start payout from aged 55 which is a lot lower than the state pension age and plans by the Government to raise the pension age further in the future.

At Tax Affinity Accountants we are already helping hundreds of employers with their Work Place Pensions. Guiding them so they can make the most financially efficient strategy and plan for their company. If you would like help with this then get in touch and we would be happy to help.

By Anni Khan at Tax Affinity Accountants

Tax Affinity Accountants are experts in Tax and Accountancy. With branches in Worcester Park, Kingston upon Thames, Cheam, and Surbiton they are considered in the Industry to be expert accountants and tax advisors for small businesses. Helping and supporting companies, contractors and self employed people throughout the UK, they regularly help clients with their payroll and pension. And help grow their business by providing tailored advice.

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