If you employ someone, such as a nanny or a carer, you may have to sort out and pay into a pension on their behalf. It’s part of the government’s roll out of automatic enrolment – where employers have to make sure there’s a pension their employees can sign up to, and enrol them in it.
Q. Who needs to set up an automatic enrolment pension?
A. If you employ one or more people, you are affected by automatic enrolment. Not everyone will have to set up an automatic enrolment pension. You’ll only have to do this if:
- You employ someone. If you use an agency nanny or carer you won’t be affected.
- The person you employ is aged between 22 years and state pension age.
- The person you employ earns more than a threshold level. Currently it’s £192 a week or £833 a month, which works out at £10,000 a year (in tax year 2017 – 18).
SAVVY TIP: If you need to enrol someone in a pension, then you have what’s called ‘full employer duties’. You can find out more about the earnings thresholds for automatic enrolment on the Pensions Regulator website.
Q. I employ someone who’s under 22. Do I need to set up a pension for them?
A. It depends. If you pay them less than £833 a month, you don’t have to set up a pension and enrol them into it. But if the employee aged under 22 wants to join a pension scheme, you have to set one up for them and you may have to pay into it for them. If they are aged under 22 and you pay them less than £5,876 a year (in tax year 2017 – 18), you would have to set up a pension for them if they asked you to do this, but you wouldn’t have to contribute to it on their behalf. If you pay them more than £5,876 a year, but less than £10,000 a year, you would have to set up a pension and pay into it on their behalf, if they asked for one, but you wouldn’t have to automatically enrol them.
The same would apply to someone who was aged between the state pension age and 75.
SAVVY TIP: If you pay your carer or nanny less than £5,876 a year, you don’t need to pay into the pension scheme on their behalf. However, you still have to write to your employee and explain how automatic enrolment applies to them. You have what’s called ‘partial employer duties’ and you can read about these on the Pensions Regulator’s website. There’s also a (rather wordy) flow chart on the Pension Regulator website that summarises what you need to do.
Q. How do I choose a pension scheme?
A. Hmm. In a way the government has made it easy because there’s a government approved scheme, called NEST (National Employment Savings Trust), which has to accept people have been automatically enrolled into their workplace pension scheme, no matter how many or how few employees they have.
SAVVY TIP: There are other pension schemes that may be better for you and your employees. They may have more choice in terms of funds and/or may be cheaper. If you’d rather choose a pension scheme, there’s some information about choosing a pension scheme on the Pension Regulator’s website. It also has a page which includes all the pension companies currently providing automatic enrolment pension schemes.
Q. When do I have to set up a pension for my carer/nanny?
A. If they earn enough to mean they qualify for a pension (see above), the date you have to set the pension up will depend on your ‘staging date’. You can find this out by checking your PAYE reference.
You can find out information about your staging date and your PAYE reference on the Pensions Regulator’s website.
Q. How much do I have to pay?
A. The minimum amount you have to pay into a pension through automatic enrolment is set out in the rules. You can pay more if you want to, but you can’t pay less.
- If you are due to enrol your employee(s) in the pension between now and 30th September 2017, you should pay at least 1% of their salary into the pension (they have to pay 0.8% and they get 0.2% in tax relief from the government.
- If you’re due to enrol your employee(s) in the pension between 1st October 2017 and 30th September 2018, you have to pay in 2%.
- If you’re due to enrol your employee(s) on or after 1st October 2018, you have to pay in 3%.
There’s more information about employer contributions on the Pensions Regulator website. You can also use an interactive tool that calculates how much you have to pay into your employee’s pension.
If you want to find out more about automatic enrolment, there’s a new government website called Workplacepensions.gov.uk
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