The last ten years has seen a raft of employee pension legislation which means company owners, directors and trustees now have to make some form of pension scheme available to their employees (if they employ five or more people).
One of the most important forms of legislation was the Welfare Reform and Pension Act 1999 which introduced the Stakeholder Pension. If a company employs more than five people they are obliged to offer a stakeholder pension to their employees.
With punitive fines and sanctions if things go wrong, it is important that a company obtains the right advice about setting these up. Forum Wealth Management can design a scheme that is right for your company as well as advising on taxation, trustee and regulatory requirements a company may have.
There are several types of scheme which we have listed below:
Group Personal Pension Scheme
Where individual members run through an affiliated group with the employer providing contributions and the benefits coming from the investment returns. Staff members can take the pension with them when they leave and the scheme is fairly easy to run. There is no compulsion on the employer to contribute, but they are responsible for collecting the premiums.
Stakeholder Pension
The maximum that an individual can contribute and still receive
tax relief is the greater of their salary or £3,600 per annum
to a maximum called the annual allowance of £225,000 in the
tax year 2007/8. A company can pay up to the annual allowance for
an individual within a year.
Final Salary Scheme
Provides a defined income relative to the members salary and number of years
in the pension scheme, irrespective of the investment returns from the pension
fund. These can be very expensive for the employer to maintain, which is
why many companies have, in recent years, decided to close these schemes to
new members of staff.
Salary Sacrifice
A salary sacrifice happens when an employee gives up the right to receive part of the cash due under his or her contract of employment. In the past, the term salary sacrifice was mainly used to refer to the giving up of rights to future cash remuneration in return for the employer's contributions to an approved retirement benefits scheme. Now it is used to describe any situation where an employee gives up a right to future cash remuneration in return for a benefit in kind, although the pension route is still the most common. Those choosing not to opt into the scheme will continue to pay their own pension contributions. The benefit to the employer and employee is that both pay reduced National Insurance contributions.
A worked example of how a salary sacrifice would work is shown below.
| |
Current |
Salary Sacrifice |
| Gross Pay |
£20000 |
£18000 |
| Pensions Contributions |
£ 2000 |
£ Nil |
| National Insurance |
£ 1880 |
£ 1692 |
National Insurance saving under the salary sacrifice scheme, in this example, is £188 pa.
All schemes
At Forum Wealth Management, we have helped companies both large and small set-up employee pension schemes. |
