Pensions – An Employer Tax

November 29, 2015

 

Recent legislative changes are bringing in compulsory employer pension taxes. They are not officially referred to as a ‘tax’ but in effect they are. The unwritten resulting rule is that many UK companies take the view that any new pension contribution will ‘replace’ nominal pay rises for employees. Starting salaries for new employees seemingly incorporate the new pension element.

 

 

Penalties for non compliance are onerous and time consuming, much better to get it right first time.

The new pension system is known as ‘auto enrollment’. Most businesses both large and small are ill prepared.

Government changes over the last 20 years have made pension contributions far less tax efficient. Unsurprisingly, this completely negative approach has resulted in employee reticence to make their own contributions. The inevitable result is a massive shortfall in how current employees will be able to live post retirement. Auto enrolment is an attempt to reverse the decline in pensions with the burden being passed to employers, a move to some extent to align with other the policies in most of the rest of the European Union.

 

The actual process to engage with auto enrolment isn’t as obvious as it should be, not least of which is because the whole thing is new to pension advisers who despite the massive opportunity for them can often be reluctant to engage through sheer fear of their own compliance.

 

The Pensions Regulator is the official body in the UK dedicated to ‘advising’ and ‘helping’ companies move to the new process, and to put it kindly, reaction is mixed on their efficacy.

 

As of Jan 1st 2016 approximately 6 million workers have been automatically enrolled and around 85,000 employers have notified the Regulator they are now compliant.

 

There are 4 key things to get right:

 

1. Let the Pensions Regulator know who your adviser is

2. Find a pension scheme – not necessarily that easy, your adviser would need to know the specifics of each employee’s circumstances

3. Which employees might want to join – although it’s called Auto enrolment, not all employees have to join, this is something of a misnomer. Employees may opt out for a mixture of reasons, but they MUST be enrolled. The employer MUST not be seen to cajole an employee into opting out.

4. Final compliance – on completing the process you need to let the Pensions Regulator know you’ve done.

 

 

 

 

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