Q. I am the HR Manager of a medium-sized local business. I have been tasked (together with my Finance Director) with ensuring my company’s compliance with the new obligations to auto-enrol staff into a workplace pension. Whilst we had been quite relaxed about introducing such a pension scheme and making the obligatory contributions to our staff’s pensions (as we are in no hurry to incur the significant increase to payroll costs), a contemporary has told me that a much larger employer has been fined for its failure to comply. Is this correct and, if so, can you offer any advice regarding what I should do to ensure our compliance?
A. You are correct that the Pensions Regulator (“TPR”) has issued its first non-compliance notice to an employer in respect of that employer’s failure to meet its auto-enrolment obligations. The notice – which obliges employers to take specific remedial actions – was issued in the period to 12 August. The offending employer has not been named.
TPR has confirmed also that it has issued 38 warning letters to employers and has commenced 89 investigations into the possible non-compliance, by early staging employers, with their statutory obligations. This means that approximately 8% of those employers that have registered an auto-enrolment scheme thus far are subject to TPR’s scrutiny.
The biggest issues giving rise to TPR’s involvement appear to be employers’ failure to be ready to enrol their employees in time and the quality of employers’ communications with their workers.
I anticipate that employers are likely to find it harder to obtain appropriate advice, identify a suitable scheme and therefore comply with their obligations, as the statutory duties begin to apply to smaller employers (and the number of employers requiring advice therefore increases). This is likely to result in greater levels of scrutiny by TPR and, in my opinion, more non-compliance notices and warning letters being issued.
In terms of ensuring that you comply with your statutory obligations imposed by the auto enrolment regime, the most important factor is to ensure that you begin your preparations in sufficient time!
Too many employers have assumed that identifying an appropriate scheme, ensuring that it is established correctly and communicating the auto enrolment regime to their workers would be straight-forward. Unfortunately, in too many instances this has proved not to be the case, primarily because insufficient time had been set aside for such a project.
I recommend therefore that you seek advice from a chartered financial planner, who specialises in advising in respect of workplace pensions, as soon as you receive confirmation of your staging date and, in any event, at least six months ahead of your staging date. If you do not, you may find that your options are limited and the chances that you fail to comply with your duties increase. A specialist chartered financial planner ought to be able to advise also of possible ways to mitigate the increase to payroll costs (such as establishing a scheme on a salary sacrifice basis).
Q. I recently established three ‘pilot’ trusts as part of my estate planning (as the value of my life assurance and pension would exceed the nil-rate band in the event that I die in service). However, a friend has suggested that this was a waste of time as HMRC is set to outlaw the use of pilot trusts. Is this correct?
A. No. I suspect that your friend is referring to HMRC’s on-going consultation regarding the proposed changes to the rules governing pilot trusts.
At present, each pilot trust benefits from its own nil-rate inheritance tax (“IHT”) allowance (currently £325,000), as it applies to the 10-yearly IHT charge. However, HMRC have proposed that the rules be amended so that the nil-rate allowance is split between all trusts established by a particular person (as opposed to the full allowance being applied to each trust).
For example, at present, a person establishing three pilot trusts would do so assuming that those three trusts could each receive £325,000 upon the settlor’s death before any IHT would be payable (meaning that £975,000 could be paid into trust before IHT is payable). However, if HMRC’s proposal is enacted, the tax-free allowance would be applied across those trusts, meaning each trust would have a tax-free allowance of just £108,333. This would mean that only £325,000 could be paid into trust free of tax and the additional £650,000 would, potentially, be subject to IHT.
To further complicate matters, it has been suggested that the proposed changes may have retrospective affect (and would therefore apply to trusts that have already been established). This could, potentially, undermine tax planning which has already been undertaken.
I recommend therefore that you await the conclusion of HMRC’s consultation before seeking advice from a chartered financial planner who can review your IHT planning and advise you whether you need to take steps to mitigate the effect of any changes to legislation.
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.
0191 217 3340
