Auto-enrolment and the 2015 General Election

This is a big year for accountancy and business. There are plenty of factors that will effect out political and economical climate. We are covering two of the big issues being debated daily at the moment and those are auto-enrolment and of course the General Election in May.

Workplace Pensions Automatic Enrolment: What you need to know

As a business owner, by employing even just a single individual you may be obligated to provide a workplace pension for that member of staff. The new pension automatic enrolment scheme is gathering momentum as more are expected to comply, eventually it will be normal practice. The effect of non-compliance could lead to hefty fines and even in some extremes jail time. An automatic enrolment simply means that the staff members who meet the criteria as defined in legislation will be automatically allocated a pension. That does not mean that the employer does not have to action that scheme and have a provider and planned process in place.

Not all businesses are required to do this at the same time so you need to find when your staging date will be. Ideally, you will start the process sooner rather than later since it is inevitable, it would make sense to be prepared. You will need to seek advice and decide on the best pension scheme for your employees and your business moving forward. There are different options so there are choices to be made.

The process generally works by nominating a contact. The Pension Regulator will communicate the needed information and processes to the contact. The contact will also be the one to register new staff members on the pension scheme. So who does this apply to?

The criteria for auto-enrolment is as follows:

  • The employee needs to be aged between 22 and State Pension age
  • They need to earn more than £ 10 000 a year
  • The employee must work in the UK

The best action you can take right now is to go and seek advice from an experienced pension advisor. They will talk you through your options and help you find the right scheme for you and your staff.

Types of Workplace Pensions are:

  • Defined Contribution Pension Schemes
    • This is usually expressed as a fund value and usually depends on the amount that’s been paid in, for how long it’s been paid in and how long the investment has done.
    • When you retire and the markets are not doing well at the time of retirement, you may end up with less than you anticipated, however, the reverse is also true should the markets do well.
  • Because your employer is purchasing the scheme from the provider in bulk, the fees negotiation in terms of managing your fund is usually less.
  • Defined Benefit Pension Schemes
    • These are usually expressed as a percentage
    • What defines the pay-out, depends on your pensionable income and the amount of years you have worked for your employer.

The percentages each party has to pay:

This gets to the core of the fear that most employers are wrestling with – how much will it cost? The fact that it is beneficial and makes sound sense for retirement doesn’t make the outlay any easier to manage with a tight cash flow.

  • The employee:
    • Minimum 0.8% of your ‘qualifying earnings’ rising to 4% by 2018
  • The employer:
    • Minimum 1% of your ‘qualifying earnings’ rising to 3% by 2018
  • The government pays:
    • 2% of your ‘qualifying earnings’ rising to 1% by 2018

The rise is staggered to help small businesses with the financial commitment they are making. To some it will be a testing time but the scheme is designed for ease of integration and it offers employees a securer future.

When will you have access to your pension fund?

The pension fund only becomes available to you when you reach the age of 60 or 65, depending on when you decide to retire. You can take early retirement in some instances at the age of 55, however, it is very seldom that it is recommended as we tend to live far longer than previous generations. The extra five to ten years spent at work may just make a very big difference to an employee’s pension fund.

Tax charge

Bear in mind that if you contribute more than 100% of your salary to a pension, or more than £40 000, whichever is the lowest, you may have to pay a tax charge. Your lifetime allowance is £ 1.25 million. This is not limited to your workplace pensions, this will include all your pension contributions. For most this will not be a huge concern! But you never know – live the dream!

 

What does 2015 hold in store for the UK?

With the 2015 General Elections coming up, it is a well-known fact that David Cameron along with all the other party leaders, will be marketing their way onto our screens, into our newspapers and onto our social media feeds a lot in the coming months.

There is a big question over what this election will bring and there are plenty of theories. But, what this election does have, perhaps more than any that have preceded it, is a hell of a lot of doubt over which way this one is going to swing.

  • Is Ed Miliband really the right face and fit to lead Labour to victory – most doubt it
  • Will Nick Clegg and the Liberal Democrats hold any traction at all after his famous U-turn on tuition fees after joining forces with the Conservatives four years ago?
  • Can Cameron muster enough votes to avoid a coalition, or worse, complete indecision which will signal a loss of faith in his actions to date?
  • Will the UK Independence Party or Scottish National Party draw enough votes to cause a serious upset and even feature in coalition talks – doubtable but can we really say for sure?

The future of British politics has never been more in doubt. As hard as the decision is the importance of each single vote has never been greater. It may well come down to a few votes in the end and one of those could be yours! Make it count, even if you spoil the paper and vote for democracy in a form that is not currently represented in the houses of parliament. This year is the year to vote and who knows what outcome we will have when May is over!

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