Auto-enrolment

The government is being urged to lift two key restrictions on the operation of the National Employment Savings Trust (NEST).

A Work and Pensions Select Committee report wants to make it easier for employers to choose the default option over others for auto-enrolment.

The document suggests that the annual contribution cap be scrapped to enable the use of NEST for all employees, including high-earners. It also recommends lifting the ban on transferring existing pension pots into the scheme.

Many employers will not be able to use the scheme and the employees for whom it was intended will miss out.

However, Adrian Boulding, Pensions Strategy Director at Legal & General, argues that removing these limitations will distract from the offering’s original aim.

“These restrictions keep NEST tightly focused on the areas where the nation needs it. Removing the restrictions before the scheduled review in 2017 would risk NEST becoming distracted to the detriment of the very consumers it was created for,” he said.

The government has introduced new legislation which means all companies will have to automatically enroll their eligible workers into a contributory pension plan. This requirement will be gradually phased in, beginning with the largest employers in 2012.

NEST (National Employment Savings Trust) is a pension scheme which has been designed to meet the employer’s responsibilities. It has been designed to be a low cost option, simple and available to all employers, irrelevant of their size. Although it has been designed to have low charges, it will have a limited range of fund choices available as well as restrictions on initial transfers and levels of contributions.

The National Employment Savings Trust pension scheme will be operated by the NEST Corporation; they are a non-profit corporation run by trustees and will be governed by the Pensions Regulator.

NEST has been designed to provide employees with access to a pension plan. However, there may be other pension schemes which are more suitable to an individual’s circumstances. For high earners and others requiring more diverse investment options, then NEST may not be suitable.

NEST Pensions and Employers Requirements

From October 2012, employers will be required to auto enroll eligible employees into the NEST Pension Scheme (unless you already have a company pension scheme which meets all the qualifying criteria or you have already set up a qualifying scheme).

The NEST Pensions scheme – previously known as Personal Accounts Delivery Authority (PADA) – is designed as a mechanism for employees on lower earnings who may not have access to a company pension scheme. It is intended as a low cost, simple way for employees to save money for their retirement. It will also have features which make sure it’s ongoing suitability.

• Low Fees
• A default investment fund
• Limited choice of investment funds
• A limit of £4200 a year contribution level

The National Employment Savings Scheme will be a non-profit corporation operated centrally by the NEST Corporation and will be under the regulatory control of the Pension Regulator.

How does this affect Employers in the UK?

On first review the NEST Pension Scheme seems to be a good thing for employers. It’s an easier way of setting up a qualifying pension, than initiating and implementing a company pension scheme. It’s worth noting however, that the NEST scheme isn’t likely to appeal to those who are on higher earnings or for employees who require a larger choice of investment funds and greater contribution levels

If you require any further help or advice then please contact us directly, one of our team will be happy to help.

HM Revenue & Customs (HMRC) requires employers to submit P11D forms, recording the taxable (cash equivalent) value of certain expense payments and Benefits in Kind, for most directors with specific exceptions. They are also required to do so for all employees if the “earnings rate” for the employment, in the year, is £8,500 or more.

The £8,500 limit operates on a pro rata basis if the employee is only in employment for part of a tax year, meaning that starters and leavers during the year can be “P11D employees”, when earnings are “annualised”, even if their actual earnings were less than £8,500.

P11D exemptions

The main exemptions from employers having to enter benefits and/or expenses on P11D forms are where:

1. A written dispensation notice has been given by HMRC, that there is “no additional tax” attaching to the employer provision, eg business entertainment expenses.
2. A statutory exemption or extra-statutory concession exists – Chapter 5, Booklet 480 summarises the main non-taxable payments and benefits.
3. Minor and/or irregular employer provided benefits or where it is impracticable to value or to apply PAYE on certain expense payments and benefits. Also when such items are included in the employer’s annual PAYE Settlement Agreement. This formal agreement with HMRC transfers the Income Tax liability from employee to employer, with the tax due calculated on a grossed-up basis.
4. The direct employer has not arranged the provision of a non-cash award to its employee(s), in which case, direct employers have no reporting responsibility for third party employer awards

Deadlines

The deadline to submit relevant 2011/12 P11D forms to HMRC is by 6^th July 2012. Employees still working for an employer on the last day of the tax year, 5^th April 2012, must receive a copy or equivalent P11D details by the same time limit.

P11D Quality Standard

Since 6^th April 2009, HMRC has operated a Quality Standard for P11D forms. It sets out all the conditions that each P11D form must satisfy, whereby the submitter must include the employer reference, employee’s name, NINO and employee’s date of birth and gender, if the permanent NINO is not known.

HMRC rejects P11Ds that do not meet the Quality Standard. Paper forms are returned to the employer for correction and resending by 6^th July in order to avoid a penalty being imposed. For online submissions, any problems must be resolved before the employer can submit successfully online.

Penalties

There are penalties for failing to make late and/or incorrect form P11D returns. Form P11D penalties remain discretionary; there is no automatic penalty provision as with other PAYE returns.

For each incorrect return the employer may incur a penalty up to a maximum of £3,000. Additionally where the employer files a late return a penalty of up to £300 per return may be charged, plus a further penalty of up to £60 per day, per return, that any failure continues.

From the 6th April 2012 there will be changes to rates and allowances that will apply to your payroll.
Some of the main changes are listed below:

PAYE Allowances

• The PAYE tax threshold has increased from £7,475 to £8,105 per year
• The higher rate allowance has fallen from £35,001 to £34,371

National Insurance Allowances

•   The lower earnings limit has increased from £102 per week to £107 per week
•   The primary threshold has increased from £139 to £146 per week
•   The secondary threshold has increased from £136 to £144 per week

 Statutory Sick Pay (SSP)

•    The standard weekly SSP rate will increase from £81.60 to £85.85

Statutory maternity, paternity and adoption pay (SMP, SPP, SAP)

•   SMP (after the first 6 weeks), SPP and SAP will increase from £128.73 to £135.45

Student Loan

•   The Student Loan Threshold will increase from £15,000 to £15,795 per year

You will need to ensure your payroll and all documents, such as employee handbooks are updated for the necessary changes.

For more information on all the changes to the rates and thresholds go to http://www.hmrc.gov.uk/paye/rates-thresholds.htm