Expert auto enrolment advice for businesses across Scotland

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Auto enrolment advice and integration from Select Investment Managers

As part of the Government’s attempts to ensure a prosperous future for the UK’s growing and ageing population, the Pensions Act 2008 has been introduced. This confers certain duties on employers, who must by law create a workplace pension scheme and then contribute to any policies on behalf of employees who are paid via a PAYE scheme.

This is called Automatic Enrolment, because there should be no responsibilities from the employees’ perspective in terms of having to apply or register. Instead, the onus is entirely on employers, and even companies with existing workplace pension schemes must check that their current plans are suitable. A point of contact has to be nominated, and each company will have been provided with a staging date when automatic enrolment duties come into effect. In an attempt to simplify matters, a trust-based savings scheme called NEST has been established that will ensure companies of any size can meet their automatic enrolment responsibilities.

It’s estimated that automatic enrolment can take up to a year to prepare for, and many employers are uncertain of where to start. The team at Select Investment Managers have therefore dedicated time to studying these new regulations, and are in a position to offer honest and practical advice about how to establish a suitable scheme and enrol staff. Our experts can also ensure that the correct balance is struck between employee salary contributions, employer contributions and Government tax relief.

  • Salary and income levels. Tax is paid on a lot of savings income, so a higher-rate taxpayer will currently lose 40 per cent of any interest over £500 and a basic-rate taxpayer would lose 20 per cent of anything over £1,000.
  • Frequency of withdrawal. Typically, higher rates of return are available on investment vehicles where the money can’t be accessed for a certain period of time.
  • Risk aversion. The highest rates of return are often found in relatively risky areas like the stock market, where it’s possible to make (or lose) significant sums. Conversely, the first £85,000 invested with each UK-regulated bank or building society is protected from loss under the Financial Services Compensation Scheme (FSCS).
  • Willingness to transfer funds. Many savings vehicles offer tempting introductory interest rates for a limited period, before defaulting to lower rates. Being willing to regularly switch accounts can ensure savings continue to accrue respectable levels of interest. Before transferring funds it is vital to check whether or not you will lose any guarantees or incur any fees by moving your money.

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Useful advice about workplace pensions

All firms that existed when the initiative started will have enrolled their staff by April 2017, followed by all new employers by February 2018. The level of pension contributions will be phased in over time to help employers and individuals adjust. Full contribution levels will have to be paid from 1 October 2018.

There is a minimum contribution level that will be incrementally phased in by October 2018. By this point, an employer must contribute at least 3% of a worker’s qualifying earnings. This figure is calculated by assessing the level of each employee’s remuneration that falls within the thresholds announced annually by the Department for Work and Pensions. It must include salary, overtime and any bonuses/commissions, as well as statutory sick/adoption/maternity/paternity pay that. Employees must contribute 4% and a further 1% is provided through tax relief.

It’s important to note that if a company has no staff – other than a sole director or a group of directors of whom only one has an employment contract – then the workplace pension scheme doesn’t apply. Opting out of this requires a letter or email of notification to be sent to The Pensions Regulator, listing basic company information like its Companies House number and employer’s PAYE reference. If circumstances change and employees are recruited (even other directors working under contracts of employment), the regulator must be informed as soon as possible.

Workers under the age of 16 and over the age of 75 are exempted from the scheme, as are people who do not ordinarily work in this country. Armed Forces personnel are also exempt, along with the self-employed and people earning less than £10,000 per year. Once enrolled, employees may also choose not to participate by completing an opt-out notice from the pension scheme provider and supplying it to their employer however, they will be automatically re-enrolled at a later date.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount you invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

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