What’s new with pensions?
As we are now two months into the new tax year, it’s the right time to get up to speed with the changes to auto-enrolment and workplace pensions.
The lifetime allowance has been frozen at £1,073,100.00 for the tax years 2021/22 – 2025/26. This means that more employees will need to consider lifetime allowance protection. Although this is a personal matter, employers should alert staff to this potential issue.
2021/22 other pension related tax allowances are;
-
annual allowance – £40,000
-
tapered annual allowance – £10,000
-
money purchase annual allowance – £4,000
Auto-Enrolment
For 2021/22, the earnings trigger for auto-enrolment remains at a monthly value of £833.33.
The lower level of the qualifying earnings band remains aligned with the lower earnings limit at £520 per month. The upper qualifying earnings band has increased slightly in line with upper earnings limit to £4,189.
Minimum contributions remain the same at a total of 8%, of which the employer must pay 3% and the employee 5%.
Using salary sacrifice for a cost-free pay rise
Being able to save tax by salary sacrifice has finally ended, although this doesn’t mean you can’t use salary sacrifice again in the future.
Pension contributions
A salary sacrifice which consists of an employee trading a proportion of their salary in exchange for their employer paying into a pension scheme isn’t subject to the restrictions imposed by HMRC in April 2017. The reason for this is most likely that even before then it didn’t result in any tax savings.
Pension related salary sacrifice
The reason that schemes involving pension contributions are more useful than alternative salary sacrifice arrangement are because most employees either belong to a workplace pension or contribute to a personal pension plan of their own. As an employer, you can use this to offer a pay rise to your employees in the form of extra pension contributions at no additional cost to the company.
Adderley, Hill & Co Team
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