What does pension auto-enrolment mean to you?

If you run a limited company and have registered as an employer, you will have been sent letters about employer pension auto-enrolment at certain staging date by pension regulators. What actions do you need to take?

It depends on your company’s structure: if you hire employees, even if they are part time, you still need to contribute pension for them. The minimum percentage of employer contribution is starting at 2% of the salary and ramping up to 4% at April, 2019, and you have to do this by your staging date.

If you are the owner director of the company and don’t have any other employees, you don’t have to contribute pension, even though your company pays yourself salary regularly.

This first seems a good idea – you don’t have to set up a company pension scheme and administrate it, there is one less thing to worry about. However, you do have tax benefit if you contribute pension as an employer to yourself as an employee, as this pension is treated as part of your company’s costs, and reduces your company’s taxable profit. For example, if you put £10,000 into pension, there is a £2,000 saving in corporation tax plus £2,6000 saving in personal income tax assuming you will take the after-tax profit as dividend and you are a higher tax rate payer.

You can almost get away without a flip side. There are pension scheme providers to choose from, but the list is not very long for providers who serve small businesses. Once you choose one and set up the regular contribution, there is not much administration for it. The amount you contribute is flexible and you can adjust it as per your company’s financial status.