Government Agrees ALL Businesses Have to Offer Pension Schemes

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As part of the comprehensive spending review 2010, the Government confirmed on 27th October that it will proceed with auto-enrolment for pensions from 2012 and the establishment of the National Employment Savings Trust (NEST). What does this mean? All British businesses, no matter how small, will be expected to offer employees the chance to join a workplace pension scheme. The new scheme will start in 2012 and all employers will be required to participate by September 2016. Smaller employers, with less than 50 employees, will be able to use a state-sponsored scheme – NEST – rather than establish a workplace pension scheme of their own. However, Crispin Rhodes advises reviewing the various options from an early stage to ensure that you are ready for this when the time comes. Under the new rules, all employers will be expected not only to provide a pension scheme but to make a contribution for employees aged 22 or over and currently earning more than £7,475 a year which will be the new threshold for the personal income tax allowance from April 2011. Where such a scheme is not provided by the employer, employees must be enrolled automatically into NEST. Employer and employee contributions will be introduced on a phased basis. Until October 2016, the minimum overall level of contributions will be 2% with 1% being made by employers. From October 2016 to September 2017, the total contributions will be 5% with 2% being made by employers and from October 2017, the total minimum contribution level will be 8%, with employers paying in a minimum of 3% of annual earnings, employees 4% and 1% coming in tax relief from the Government. Employers will have 12 weeks in which to enrol a new employee either into a workplace scheme or into the NEST scheme. Preparation is key to a successful change over. Automatic enrolment, be it NEST or a company scheme, will inevitably result in additional administration and cost. It will result in very many employees receiving less in their net pay as they suddenly start paying into a pension scheme for the first time so be sure to make your employees aware and understand the changes long before they take place. If you would like further advice and support, please email angela@crispinrhodes.co.uk with “pension” in the subject line and we’ll make arrangements for our independent pensions associate to contact you.

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