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Limited companies and pension auto-enrolment

Pension auto-enrolment obligates companies to automatically enrol employees in a pension scheme unless workers decide to ‘opt-out’. As a result, all company owners should make themselves aware of pension auto-enrolment and how it will affect them when hiring employees.

Auto Enrolment Pension

The start of pension auto-enrolment

The pension auto-enrolment scheme came into effect in stages in 2012. First, it affected the very largest companies (those with 250 or more employees), followed by medium-sized businesses and then finally small businesses. Currently, all businesses with employees have to have a pension auto-enrolment scheme.

How much is the current contribution for the pension?

The current contribution of pension auto-enrolment as of April 2019 is a total of 8%. The employer has to contribute at least 3% of this. This minimum contribution will apply to earnings of £6,136 and £50,000 a year for the tax year 2019/20. This is reviewed yearly by the government and usually increased. Employees can choose to opt-out of paying towards their pension, however, this will mean they will lose out on the contributions made by the employer.

Importantly, the new regulations do not apply solely to employees who are paid via PAYE. According to the Pensions Regulator guidance, ‘Jobholders’ are defined not only as those who have a contract of employment, but also who have a contract to provide personal services, but who are “not undertaking the work as part of their own business.”

Personal service companies and other professional contractors and consultants who are truly ‘self-employed’ do not fall within the scope of the pension auto-enrolment regulations.

Who will be auto-enrolled?

If the following criteria are met by the employee, they will have to be auto-enrolled by the employer:

  • They work and are an employee in the UK
  • If they don’t already have a workplace pension scheme in place
  • Are between the age of 22 and the State Pension age
  • Earn more than £10,000 (2019/20)

Status of one-man limited companies

If you are a director of a limited company, with no employees, you are not affected by the pension auto-enrolment. However, the moment you take on a worker under a contract of employment, both the director and the new employee fall within the scope of pension auto-enrolment obligations.

Further Resources

If your company falls within the scope of the new rules and does not already have a company scheme in place, the Pensions Regulator suggests investigating NEST (the National Employment Savings Trust).

Getting a pension as a limited company director.

If you are interested in finding out more about pensions for limited company directors, you can visit CMME or fill in the form below. The team behind Company Bug has worked with CMME since they launched. As the largest IFA dedicated to the needs of freelancers, contractors and company owners, they have helped thousands of individuals over the past 15 years. You can also visit ContractorUK for more information.

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The value of investments may rise as well as fall and past performance is not a guide to future returns. Financial advice is given by CMME, which is a trading name of CMME Ltd and is regulated and authorised by the Financial Conduct Authority.

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