Monthly Archives: January 2018

The next steps for automatic enrolment
January 2018

The government has published a review on automatic enrolment in workplace pensions which makes important proposals for employers.

Automatic enrolment of employees in workplace pensions has been a greater success than many predicted when it was introduced in October 2012.  To date over nine million employees have been automatically enrolled into a workplace pension and more than 900,000 employers have complied with their auto enrolment responsibilities.  Total annual contributions into workplace pensions reached a ten-year high of £87 billion in 2016.

With the framework now firmly in place, the government has turned its attention to the next developments for workplace pensions.  Its main ideas are:

  • The minimum age at which automatic enrolment begins should be reduced from 22 to 18.  This would bring another 900,000 young people into auto enrolment.

  • The contribution structure would change so that once the earnings trigger (£10,000 for 2017/18 and 2018/19) is reached, the contribution percentage paid by employers and employees would be based upon all earnings, not earnings exceeding the lower earnings limit (£5,876 in 2017/18 and £6,032 in 2018/19).  The upper earnings limit (£45,000 in 2017/18 and £46,350 in 2018/19) would still apply to cap contributions.  In current terms, the effect would be to increase contributions for an individual earning £26,000 by nearly one third.

  • The government will test “targeted interventions … to identify the most effective options to increase pension saving among self-employed people”.   Only 16% of the self-employed were contributing to a pension in 2015/16, a large gap in pension coverage given they now number 4.8 million (15% of the workforce).

The age and contribution reforms are pencilled in for the mid-2020s.  This delay, which has attracted some adverse comment, may reflect the fact that the current contribution rate of 2% (of which the employer must pay at least 1%) will rise to 5% (2% from the employer) in April 2018 and to 8% (3% from the employer) a year later.  However, in a foreword to the paper, the government acknowledges that “contributions of 8% are unlikely to give all individuals the retirement to which they aspire”.  In other words, for all the government’s efforts to push automatic enrolment, you still need to assess the effectiveness of your own retirement plans.  If you need any advice on retirement planning or automatic enrolment, please get in touch with us.

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.   The value of tax reliefs depends on your individual circumstances.  Tax laws can change.  The Financial Conduct Authority does not regulate tax advice.

The Scottish version of income tax unveiled
January 2018

Last month saw another Budget – for Scotland, this time.

The Scottish Budget in the middle of December contained potential omens for the whole of the UK with its proposed changes to income tax bands and thresholds.  In the foreword to the main Budget document, Derek Mackay, the Scottish Cabinet Secretary for Finance and the Constitution, said he believed his income tax measures would make the system in Scotland, “fairer and more progressive”.

Whether or not that is true, Mr Mackay has certainly made it more complicated, as the table of proposed tax rates and bands for 2018/19 shows:

* If earnings exceed £100,000 the Personal Allowance is reduced by £1 for every £2 earned over £100,000.

The proposed structure will result in 70% of all Scottish income tax payers paying less than they do for the current financial year, according to Mr Mackay, although some of this achievement is down to the Westminster Chancellor raising the UK-wide personal allowance by £350.  Nevertheless, the other 30% will pay enough extra tax to mean a boost of £164m to the Scottish government’s income in 2018/19.  The difference in bands and rates may look modest enough, but Scottish residents earning £50,000 a year will end up paying £9,015 of income tax in 2018/19 against £8,360 for their English, Welsh and Northern Irish counterparts.

Mr Mackay said that increasing the top rate of tax to 50% had been considered, but the Council of Economic Advisers suggested that this would be “unlikely to raise any substantial funds for the Scottish budget, and may in fact reduce revenues”.  There are only 20,000 top rate taxpayers in Scotland and the Council was doubtless considering the likelihood, and impact, of some of them crossing the border to England to pay 45%.

The changes proposed in Scotland – which still need parliamentary approval – will be watched with interest in the rest of the UK.  John McDonnell, Labour’s Shadow Chancellor, has made his own proposals for raising income tax rates, including a new top rate of 50%.  He will doubtless be waiting to see how the Scottish public reacts to Mr Mackey’s “fairer and more progressive” system.

In the meantime, the plans of Mackay and McDonnell both serve as reminders that you should be starting to think about your year end tax planning.  Please get in touch with us if you’d like to discuss this.

The value of tax reliefs depends on your individual circumstances.  Tax laws can change.  The Financial Conduct Authority does not regulate tax advice.