Payroll costs set to rise by 3%

It has been well reported that there is a large pension deficit in the UK and many of us will not have sufficient funds with which to retire. You will remember that in 2001 the government introduced new pension legislation making it mandatory for all employers with 5 or more members of staff to offer stakeholder pensions to their workforce. This was a great idea in theory but in practice very few workers are making contributions. With the State pension system at breaking point the government has decided upon some new drastic action…

The Department of Work and Pensions is proposing new legislation which will force all employers to provide and pay into a pension scheme for their employees.  For most small to medium sized businesses this will come as a financial body blow especially during the current economic climate and so planning is essential.  The average business will see payroll costs increase by up to 3% but there are some strategies which, if employed, could help your business weather the storm. Let’s look at the proposals in more detail…

Key facts

  • Employers will be required to automatically enrol all employees aged between 22 and 65 who earn more than £5,035 per annum into a pension scheme. Employees can, however, opt out.
  • Employers will be required to pay pension contributions of 3% of an employee’s earnings between £5,035 and £33,540 (in 2006/07 earnings terms).

  • Employers can either use their own pension scheme to comply with these new laws or rely on a Government controlled national pension scheme. Existing workplace pension schemes may need updating to comply with the new rules.

How can we help?                                                   

We can learn lessons from overseas - the introduction of compulsory pensions in Australia has led, over time, to lower salaries. By planning early and awarding salary increases each year up to 2012 that are lower than originally intended, employers can save enough to offset the cost of higher pension contributions in the future. 

Discussing your options and making strategic decisions now will enable your business to weather the storm.  If you would like us to keep you up to date on this or discuss how the new legislation affects your business, please email matthew@alanseward.co.uk or call Matthew Rich on 01225 44 88 32.

 

  
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