A new tax year has begun and employers should make sure their payroll, and other HR systems, have been updated to meet their legal responsibilities with regard to pensions changes that have arisen.
One of the key developments introduced yesterday (6 April) was the rise in national minimum wage (NMW) and living wage levels, which will now bring more employees into automatic enrolment.
According to the government’s own review of auto-enrolment, the impact of the freezing the £10,000 trigger point combined with an increase in the NMW will result in 8,000 new pensions contributors. But it is the rise in the national living wage (NLW) – from £8.72 to £8.91 – that will now mean ‘all’ employees working more than 22 hours a week will meet the £10,000 minimum earnings threshold that qualifies them for a workplace pension.
Added together, it is estimated that around two million people will be earning more money, especially as eligibility for the NLW is widened to include 23- and 24-year-olds instead of just those aged 25 and over.
Jo Tunnicliff, solicitor at Shoosmiths, said: “It is important employers take heed of this change as breaches of the NMW have not only financial implications but, and perhaps more importantly, reputational implications as well.”
She added: “Employers that do breach their NMW/NLW obligations will be required to pay their affected employees in arrears at the current rates, as well as paying potentially costly penalties to HM Revenue and Customs of up to 200% of the total of those arrears.
Other changes include the annual pension allowance available to workers being reset at £40,000.
However, the temporary reduction of the Lifetime individual savings account (Lisa) withdrawal charge of 20% will end. It has now reverted back to 25%, meaning any workers who now make an unauthorised withdrawal (such as taking money out before they are 60 or not using it to buy a first home), lose it.
For every £1,000 taken from their Lisa, workers will will forego the £250 government bonus earned on their original subscription. The increase means the 25% charge effectively acts as a 6.25% penalty on non-permitted Lisa withdrawals.
The pensions lifetime allowance has also been frozen at £1,073,100, so high-paid workers nearing this figure could be forced to either stop contributing to pensions from their salaries, or end up paying more tax.
According to a spokesperson from The Pension Advisory Service, it may now “be necessary for workers to stop contributing to the scheme/plan, even though they have not retired, to avoid benefits exceeding the lifetime allowance”.
As of 6 April, the state pension also increased by £230 per year.