From 2012 onwards, employers are obliged to offer a qualifying pension scheme to their employees from their staging date.
For most contractors, the staging date (when the auto-enrolment pension needs to be up and running) will be sometime in 2016. You will receive a letter from the Pensions Regulator giving an exact date.
Am I eligible to setup a pension scheme
All workers who earn above a certain amount (£10,000 a year in 2015/16) are automatically enrolled into a pension scheme although they can ‘opt out’ and leave the scheme, but only after they have been automatically made a member.
Dividends are not included in the gross earnings total, so contractors who operate a low salary and dividend top up strategy will remain outside the scope of the legislation.
To be eligible for auto-enrolment, a contractor’s employees must:
- Be aged between 22 and the state pension age
- Work in the UK
- Have gross annual earnings in excess of the lower earnings limit threshold – £10,000 at the time of writing
Limited companies with only one or two directors and no other employees are generally exempt from auto-enrolment however contractors with employees, such as a spouse or partner that is not a director, may be affected.
Businesses that are exempt are required to contact the pension regulator confirming the reason for exemption to satisfy their requirements.
How much do I contribute?
The minimum amount you and your employer have to contribute under auto enrolment will gradually increase between 2012 and 2018. It is a percentage of ‘qualifying earnings’ (between £5,824 and £42,385 in 2015/16).
- From 2012 to 2017, employees contribute 0.8% plus 0.2% tax relief, employers 1% (overall minimum is 2%)
- From 2017 to 2018, employees contribute 2.4% plus 0.6% tax relief, employers 2% (overall minimum is 5%)
- From 2018 onwards, employees contribute 4% plus 1% tax relief, employers 3% (overall minimum is 8%)
National Employment Savings Trust (NEST)
NEST is the workplace pension set up by government and is free for employers. It is easy to easy to set up as it has been built specifically for auto-enrolment.
It is an independently-run defined contribution (DC) pension scheme, specifically designed for low-to-moderate earners and those whose employer has no existing scheme.
It will also be open to the self-employed who wish to set up a personal pension.
- NEST members will be restricted to an annual contribution limit of £4,700. This is the combined total from the member, their employer and the government (via tax relief). The minimum employer contribution will be 3% of qualifying earnings in 2018
- NEST charges for members have been set at a 0.3% annual management charge and an initial 1.8% charge on contributions. For most people, these will be lower than existing DC schemes, which typically charge an annual management charge of 1%
- NEST investment choices will be limited to a five default funds and an ethical fund. They incorporate life styling, to reduce risk as a member nears retirement
The AccountsNet portal is ready
Once eligible clients have gone through the auto-enrolment process, our portal payroll functionality which is directly connected to NEST, will allow contributions to be accurately recorded without the need for any further reporting