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Pension contributions increase for employees whilst the self-employed still struggle to save

Under The Pensions Act 2018, the minimum pension contributions paid into auto-enrolment schemes, by employers and employees, will increase. There will be two increases, the first in April 2018 and again in April 2019.

As an employer you should consider how the new pension contributions will impact upon your budgets. Compliance is mandatory; any scheme not using the higher rates will no longer qualify as an auto-enrolment pension scheme. It is, therefore, vital that you continue to meet your obligations.

Minimum pension contributions set to increase

The new rates are as follows:

 

Note: Both employers and staff can pay more than the minimum pension contributions if they wish.

So far, around 8 million workers have benefitted from auto-enrolment and are now saving into a workplace pension. Around 73% of small businesses and nearly half of micro-businesses will fulfil their pension duties in the next three years. Some fear that they will struggle to comply, however, as they lack the resources necessary to keep up with change.

Self-employed still struggling

However, micro-employers are not the only group causing concern; the 5 million self-employed not currently benefitting from auto-enrolment are also sparking debate. Self-employment has increased in popularity, offering people the freedom to schedule work around other commitments. Freedom and flexibility come at a cost, however, as the self-employed are not entitled to the same perks as employees.

Self-employed workers are currently unable to participate in auto-enrolment, meaning approximately 15% of the population face difficulty when saving for retirement. Whether they are enveloped in the current auto-enrolment regime or whether a separate policy must be created, to suit their needs, is the cause of much debate.

What can be done?

The Department for Work and Pensions (DWP) are reviewing auto-enrolment to identify if and how the self-employed can benefit from the current set up. The Taylor Review, requested by the Government, is also currently considering modern working practices and developing proposals to enhance the lives of those living and working in the UK, including the self-employed.

The Government must act to improve the provision of pensions for the self-employed. For example, a pension could be administered via the established self-assessment system, into which the self-employed individual would be auto-enrolled.

The self-employed need an incentive to participate, but so do employees. Considering the increase in pension contributions, anybody who falls within the scope of auto-enrolment should feel that they are better off in the scheme than out of it. The true measure of success should be the volume of people who show themselves to be willing participants.

Here at George Hay we have a dedicated payroll team who can help you to fulfil your responsibilities as an employer, under the auto-enrolment regime. If you’d like to find out more about what we can do for you, contact one of the team today.

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