Updates to legislation have doubled the amount you pay into your employee’s pensions pot.
Updates to pension legislation mean the amount you have to pay into your employee’s pensions pot has doubled.
The minimum pension contribution required from employers has just doubled from 1% to 2% of an employee’s salary. For each individual employee, the increase doesn’t seem like much – normally just a few pounds a week.
But for those with a larger staff roster, costs quickly add up, especially when many small biz owners already struggle to pay their staff on time. These costs can escalate alarmingly: the penalties for failure to comply range from a £400 fixed fee to a daily charge of £50-10,000, depending on the number of employees on your payroll.
Why is this happening again?
The update to the legislation is intended to increase the UK population’s retirement savings. Britain is currently facing a £400+ billion pensions deficit, with many pensions schemes predicted to be unable deliver the pensions they promise.
Worse, about half the UK’s middle-aged population are still not saving for retirement. And of the rising number of self-employed workers in the ‘gig economy’, only a quarter are putting money towards their state pension.
By contrast, the ‘auto-enrolment’ policy has seen the proportion of savers in traditional employment jump up to three quarters – a record high.
Small biz hit hardest – as usual.
The problem with the way these changes are being rolled out is that the sudden doubling of small business contributions eats into already narrow cashflows.
Many larger corporations are already paying more than they have to in pension contributions – in which case, the change can pass almost unnoticed. Big businesses are also better able to swallow the extra costs, and generally better prepared for legislative changes. Most small business owners, on the other hand, have their hands full managing their current obligations.
Small businesses have been hit hard over the last year, with last April’s business rate revaluation leaving many businesses poorer than they would otherwise have been. We covered the government’s business rate errors and their disastrous ‘staircase tax’ late last year.
Seek pensions advice
As with most business supplies, it’s best to shop around to make sure you’re getting the best deals from the best providers. Some pension funds will charge monthly fees to employers, others are free.
If you’re struggling to keep up with the added costs, a quick look on the market could be the solution. Contribution rates are set to rise further in 2019, so a change now could save you a bundle in the long run.