Are you aware that there has been an increase in the minimum pension contribution? Are you unsure as to how to work out how much you or your employees should be contributing? To find out more information regarding pensions and tax planning, then please find out more by reading below.
What do I need to know?
You should be aware that from 6 April 2019, there has been an increase in the minimum contributions that you and your employer must pay into your workplace pension scheme.
The minimum contribution for employers has risen from 2% to 3%, and the staff minimum contribution has been increased from 3% to 5%.
The amount that an employer and employee pay into a workplace pension scheme will vary depending upon the type of scheme chosen and its associated rules.
The employee contribution will vary depending upon the type of tax relief that will be applied by the scheme.
How do I calculate the contributions?
The majority of workplace pension schemes used by employers will require an 8% contribution to be paid from April 2019.
To calculate the minimum contributions payable is based upon the specific range of earnings. For the 2019/20 tax year this will range between £6,136 and £50,000 a year (£512 and £4,167 a month).
The following amounts are included for calculating the contributions payable:
- Statutory sick pay (SSP)
- Statutory adoption pay
- Statutory maternity pay (SMP)
- Ordinary or additional statutory paternity pay
Although the elements above are used to calculate contributions, it may be worthwhile to recheck the scheme documents to make sure everything is correct.
What do I need to do as an employer?
You should be aware that as an employer you should also assess anyone who is employed each time they are paid and enrol them into a pension scheme if they meet the criteria.
To calculate your staff members contributions you can work out the costs by using the Pensions Regulator calculator here – https://www.thepensionsregulator.gov.uk/en/employers/work-out-your-automatic-enrolment-costs.
As an employer you should ensure that if your staff are automatically enrolled into a workplace pension scheme, and that the new minimum amounts are being paid by yourself and the employee. If you have chosen to use an existing scheme, then these rules will also apply.
If you are operating a defined benefits pension scheme as an employer, then the increases will not apply.
If you do not have any staff in a pension scheme for automatic enrolment, then there is no action required.
Make sure that you keep records of managing requests to leave and join the scheme, and also carry out re-enrolment checks every three years to put staff back in who have left the pension scheme.
Tax planning points
You should know that there is no restriction to how many pension schemes that you can have, but there are limits on the total amount that is allowed to be contributed across all schemes each year.
You can also contribute into your spouse or partners personal pension or a child’s personal pension to allow them to build up their retirements benefits from a young age.
The maximum amount that non-earners can pay into a pension is £2,880 a year, and you will also receive an automatic 20% boost to their contribution in tax relief. (This means that if you contribute £240 per month the actual amount invested will be £300).
You should make sure that you are keeping on top of your pension scheme and ensure that your employees are paying the correct amount of pension contributions. You should regularly check and keep track of all enrolment.
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