Your Money Queries – 10th June

Q. I am the owner/manager of a small local business that employs approximately 20 people. I was expecting to have to enrol automatically those employees into a “qualifying workplace pension” in the coming years. However, a friend has told me that he read a newspaper article recently that stated that there is an exception to the auto-enrolment requirements for companies with fewer than 50 staff. Is this correct?

A. No. There is no exception to the requirement to enrol automatically all relevant employees into a “qualifying workplace pension scheme”, regardless of the size of an employer’s workforce. Even an individual who employs a cleaner or gardener may have to enrol that employee into a qualifying workplace pension, if they meet the financial criteria. With a workforce of approximately 20 employees, your obligations are likely to kick in at some point from 1 June 2015 (depending upon your PAYE reference code).

I suspect that your friend has caught a reference to a recent report, published by the Institute of Directors, which highlighted a sentiment amongst a minority of SMEs who intend to ignore completely their obligations imposed upon them by the auto-enrolment regime. That report suggested that a significant number of SMEs had no intention of complying with their statutory obligations and would instead adopt a “catch us if you can approach” to auto-enrolment and the enforcement of the regime.

Coincidentally, the Pension Regulator (the government body responsible for policing employers’ compliance with the auto-enrolment regime) published its business plan recently. The Pensions Regulator has allotted almost £30m (approximately half of its annual budget) to monitoring the auto-enrolment regime and is spending a considerable proportion of that budget beefing up its enforcement capabilities ahead of SMEs’ staging dates. The Regulator has stated that “non-compliance [with auto-enrolment] is not an option.”

If you are concerned about the prospective increase in payroll costs and/or the regulatory burden of meeting all of your statutory obligations imposed by the auto-enrolment regime, I recommend that you consult a chartered financial planner who specialises in workplace pensions. An appropriately qualified financial planner, who specialises in advising employers, ought to be able to help you identify and implement an appropriate pension scheme, assist you in demonstrating your compliance with your statutory obligations and may be able to mitigate the costs of auto-enrolment also.

Q. I read with interest your recent answer to a question, explaining the nature and benefits of saving into an ISA. I am looking to save for my grandchildren’s higher education and I am considering taking out Junior ISAs in their names. Can you first advise me of the differences between a “traditional” ISA and a Junior ISA and, secondly, whether this would be an appropriate investment, please?

A. The Junior ISA is the successor of Child Trust Funds (which were introduced by the previous Labour government). Junior ISAs were made available from 1 November 2011 for any UK-resident child (under the age of 18) who does not currently hold a Child Trust Fund account.
The aims of the Junior ISA are to provide families with a simple, transparent, accessible and competitive product to save for children who do not have a CTF account and to create the conditions for families to save more for their children that they otherwise would.

While having no tax relief on input (as for the “normal” ISAs), Junior ISAs benefit from certain tax advantages (for example, there is no capital gains tax payable if the investment increases in value and the relevant child is not taxed on parental contributions as they might be in respect of other investments). Junior ISAs have many features in common with existing ISA products also. Like ISAs, they are available as a cash or stocks and shares product. A number of the regulations governing ISA are applicable to Junior ISAs also (such as the general investment rules and qualifying investments for a stocks and shares account).

A Junior ISA is operated by the registered contact, who is able to give instructions to an account manager. This means that a parent or grandparent can establish a Junior ISA in a child’s name, taking advantage of the tax benefits, whilst maintaining supervision of the account. However, the child automatically becomes the registered contact at age 16 (or when the Junior ISA is established, if done after the child’s 16th birthday) and has unrestricted access to the money upon reaching age 18. This can, for many people, make Junior ISAs unattractive as there is nothing the adult savers can to restrict a child’s access to the funds (which can be significant) upon reaching 18 and many people fear that the funds can and will be squandered.

Each eligible child can have one stocks and shares and/or one cash Junior ISA. Any person may make payments into a Junior ISA on behalf of the account holder, provided the total subscriptions do not exceed the annual maximum permitted amount. This is £3,720 for the 2013/14 tax year (and therefore is considerably lower than the maximum subscription to a traditional ISA). Withdrawals cannot be made until the child attains the age of 18 (except in the case of death or terminal illness).

Whether or not it would be prudent for you to save into a Junior ISA on behalf f your grandchildren will depend upon a number of factors and I therefore do not have sufficient information to provided definitive advice. You will need to consider your overall financial circumstances and, importantly, whether your grandchildren already have a Junior ISA (in which case it is unlikely that you would be able to retain an element of control over the account) and, if so, whether they are/have utilised the maximum annual subscription.

I recommend therefore that you seek advice from a chartered financial planner, who specialises in savings and investments, before proceeding.

If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.

Rutherford Wilkinson Ltd is authorised and regulated by the Financial Conduct Authority.