Does Auto Enrolment from HMRC Mean I Need to Offer a Pension Scheme?
In October 2012 HM Revenue and Customs (HMRC) introduced a new automatic enrolment scheme whereby you may now have to enroll certain staff into a pension scheme as well as contributing towards it yourself.
The Automatic Enrolment is a government initiative to make sure more people have a retirement plan in place. Recent statistics show that only 46% of employee’s are enrolled in an employer sponsored pension scheme. These statistics vary widely in different sectors; the construction industry, retail, accommodation and administration sector all have low inclusion rates, whereas the public sector, energy, financial services and manufacturing industries all have high inclusion rates.
Those with little or no pension face a shortfall upon retirement, with benefits not providing them with enough to meet their retirement needs.
So what do the new HMRC pension rules mean?
From 2012 all large employers will have to automatically enroll new qualifying employees in a company pension scheme. By 2016 the scope of this will be increased to include smaller firms as well. Workers will be able to opt out of the pension scheme, but must first be enrolled. For an employee to qualify he must fits three criteria:
- Aged 22 or above
- Work in the UK
- Earn more than £9,440 per year
As you can see this creates a very broad spectrum of employee’s and will ensure that nearly all full time workers are given access to a company pension.
How much is it going to cost?
Smaller firms have not got the resources to run or administer their own scheme so it will be run by a third party. It is crucial you to seek out unbiased professional advice on what is best for your circumstances. Whilst this is not usually a big expense (average is about 1%), it will vary between providers and individuals circumstances.
The total cost for a Defined Contribution scheme (DC) must be greater than 8% of the total earnings; of this 8% the employer must contribute at least 3%.
National Employment Savings Trust (NEST) is another option. NEST is designed for low-to-moderate earners who have an employer with no existing scheme. It has an upper contributions limit of £4,000 and is open to the self employed as well as employees. The management costs are far lower (0.3%) than the DC schemes.
Isn’t this HMRC creating more hassle for businesses?
Yes, HMRC is aware of this. There are many companies who will provide turnkey solutions for smaller businesses, keeping hassle and costs to a minimum. They quite rightly believe that the advantages gained by millions more people having a much more secure future outweighs the increased hassle caused to companies.
If you are thinking of becoming self employed and need advice on how this legislation could affect you, give Taxaccolega, a low fixed fee accountant, a call and speak to one of our highly trained professionals. We can also give you advice with regards a business model that is proven to bring success so call us today on 08000 235 234 or email email@example.com