What’s new for this year with pensions?

As another new tax year gets underway, it’s timely to get yourself up to speed on changes to auto-enrolment and workplace pensions generally. What are the key changes to be familiar with this time around?

Tax year changes

Along with the freezing of tax allowances and NI thresholds, the lifetime allowance (the total amount that an individual can accrue in their pension fund without it being subject to punitive tax treatment) has been frozen at £1,073,100 for tax years 2021/22 to 2025/26. This will mean more employees will need to consider lifetime allowance protection. Whilst this is a personal matter it is worth employers alerting staff to this potential issue. The remaining pension-related tax allowances for 2021/22 are:

  • annual allowance £40,000
  • tapered annual allowance £10,000
  • money purchase annual allowance £4,000.

Auto-enrolment

The earnings trigger for auto-enrolment remains at a monthly value of £833.33 for 2021/22. The lower level of the qualifying earnings band remains aligned with the lower earnings limit at £520 per month, with the upper qualifying earnings band increasing slightly in line with the upper earnings limit to £4,189. There are no changes to minimum contributions: the total remains at 8%, of which the employer must pay 3%.

Net pay arrangement anomaly

Nearly 2m employees in net pay arrangement schemes are currently not receiving tax relief on their pension contributions because they are not in receipt of earnings that exceed the personal allowance of £12,570 for 2021/22. This contrasts with employees with the same level of earnings who are in relief at source pension schemes who automatically receive 20% tax relief despite not being taxpayers. Despite four solutions to this anomaly having been put forward by the government after a call for evidence last year, no progress has yet been made. The loss of tax relief for each employee is around £66.

Small pots, big problem

The government is currently considering how to solve the issue of the proliferation of small pension pots arising because of the number of employees changing jobs and leaving behind small workplace pension funds. 75% of pension pots in a master trust have less than £1,000; 25% have less than £100. The concern is that not only will people lose track of their pensions as on average people have eleven jobs in a working life, but also that transaction charges will erode the fund to nothing – so-called charging out. One solution to the small pots problem is “pot follows member”. When an employee leaves employment the employer provides them with information about which provider their workplace pension was with. This will allow the new employer to make arrangements to move the funds to their chosen provider unless the new employee objects. This means the pension fund follows the employee as they move employments.

Compliance activity and payroll reports

The Pensions Regulator (TPR) has asked payroll software providers if they would consider developing a suite of audit reports that it could request when considering compliance activity, so that it can risk assess whether the employer is meeting their auto-enrolment duties appropriately. The three main reports would be:

  • pension scheme set up – scheme details including pension ID, contribution rates, and whether banded or not, tax relief method and if salary sacrifice operated
  • pay element set-up – list of pay elements and whether they are taxable, NIable, pensionable and treated as qualifying earnings
  • payroll report – details at employee level of pension-related data.

Any employer which is able to create such reports on an ad hoc basis will find that this is very well received when approached by TPR. Don’t worry as all our clients are covered as Xero already deals with this issue.

What to do next

For further information on this and other topics contact Tony on 07974-418819 or email at tonymiles20@gmail.com or through the contact page of the website http://www.milestone-solutions.co.uk

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