COMPULSORY pensions will be implemented on companies from October 2012 under the new National Employment Savings Trust (NEST) legislation. This new legislation cannot be avoided and you need to prepare your business for increased payroll costs of up to 3% of annual salary roll. However some planning opportunities are available to reduce costs to you as an employer.
A clever pension is where an employee exchanges part of their salary in lieu of a company pension contribution. Pension contributions are not liable to Employer National Insurance and therefore making a pension contribution from gross salary means you will pay less National Insurance as illustrated in the example below.
The example illustrates the benefit of an employee earning £20,000 per annum exchanging 5% of salary in lieu of a company pension contribution of 8% per annum (meeting NEST criteria for a minimum of 3% employer and 5% employee contribution by October 2018).
|NORMAL EMPLOYER||CONTRIBUTION EMPLOYER||CLEVER EMPLOYER||PENSIONS EMPLOYER|
For this member of staff the total cost savings to the employer are £138 per annum. Also the employee’s net income increases by £320 per annum– EVERYBODY WINS.
By using this method of contributing to staff pensions you could keep the National Insurance savings, use them to pay for advice costs or increase other staff benefits valued by staff. It is worth noting that using this method may affect employees transactions based on salary (mortgages and loans/credit cards for example).
PLAN AHEAD; we recommend that like other ‘buying decisions’ the options are considered carefully.
If you would like to find out more please call Mark Redman on 01633 653189.