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Workplace pensions: the clock is ticking for SMEs

Archive for October, 2014

Workplace pensions: the clock is ticking for SMEs

Friday, October 31st, 2014

pension-clock-red-text-31707942Nearly 4.5m people have now been automatically enrolled in a workplace pension, but the Pensions Regulator is worried about what happens next.

If you are an employer, the first fact you need to know about the auto-enrolment process for your business is your staging date; the date when you must have a suitable workplace pension arrangement in place, along with all the supporting administration.

Staging dates are determined firstly by your PAYE scheme size in April 2012 and secondly, from June 2015 onwards for employers with scheme sizes of less than 30, by PAYE reference numbers.  The first staging date was 1 October 2012 and the last, for new employers between July and September 2017, does not occur until 2018. So far it has only been large and medium-sized (60 or more employees) employers who have reached their staging dates. As a result, the 4.5m figure relates to fewer than 30,000 employers. In the next two years, as smaller employers reach their staging dates, the numbers of businesses (as opposed to employees) will soar. The graph below, published by The Pensions Regulator (TPR), makes the point.

Last month TPR issued a warning to small businesses to check their staging dates. This was prompted by research undertaken by the regulator which showed that nearly one in five small (5-49 workers) did not know their staging date, while among micro employers (1-4 workers), almost half were unaware. Even those who claimed to be aware of their staging dates were not that knowledgeable: only 43% of small employers and 28% of micro employers had dates that matched TPR’s own records.

The regulator says that businesses should start planning for automatic enrolment a year before their staging date. Given the surge in numbers that is due in the final quarter of 2015/16, an earlier start may be wise to avoid the inevitable rush.  If your business has done nothing about auto-enrolment yet, why not start talking to us now and, at a minimum, draw up a timetable for action?

The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance

(N)ISAS and lack of interest

Friday, October 31st, 2014

HMRC have published details of ISA investments for the last tax year and they tell a strange story.

ISAs, which became NISAs on 1 July 2014, have long been popular with savers, as the graph below demonstrates.

ISA graph

 

Source: HMRC Equity ISAs numbers include insurance ISAs before 2005/06

What is surprising is the heavy bias towards cash ISAs, despite the miserable, often sub-inflation, interest rates that have prevailed in recent years. While the amount invested in stocks and shares ISAs is not much increased from the level in the year ISAs were born, cash ISA contributions have more than tripled. However, in 2013/14 the new contributions to cash ISAs fell by about 5% and the number of contributors dropped by about 10%. Stocks and shares ISAs saw corresponding increases of 12% and 2%.

This might be a sign that ISA savers are growing more aware of the smallness of cash ISA tax benefits. Take, for example, the National Savings & Investments Direct NISA, which has one of the top instant access rates at 1.5%. Invest the maximum in 2014/15 of £15,000 – more than double last tax year’s maximum – and, if you are a higher rate taxpayer, your annual tax saving is just £90.  The same amount invested in a stocks and shares NISA holding a typical corporate bond fund yielding 3.5% gives a tax saving of £210.

One of the arguments for not choosing a stocks and shares ISA used to be that it was impossible to switch a cash ISA at a later date (although the opposite move was available). Since the arrival of NISAs on 1 July 2014, transfers between cash and stocks and shares have been possible in either direction.

If you hold cash NISAs, there are two things to do now:

  • Check the interest rates you are being paid. Providers have been cutting NISA rates of late and if you have a chart-topping NISA from a few years ago, you could find it is now paying no more than 0.5%.

 

  • Talk to us about your NISA options. It may be better for you to pay tax on deposit interest and shelter your investment income and gains in a NISA.

 

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.