Financial

1 - What will this cost?

For the first five years up to the end of March 2018 both the employee and employer contribute 1% (2% in total) of qualifying earnings. The employee is entitled to tax relief at source on their contributions so their contribution will actually be deducted as 0.8% which will show on their payslip.

This will then increase from April 2018 to a total pension contribution of 5% (employers must contribute at least 2%).

From April 2019 onwards, the total minimum contribution will be 8% with the employer having to contribute at least 3%. The difference between what the employer must pay and the overall minimum contribution is made up by the employee offset by a reduction in tax liability.

2 - What is tax relief at source?

The government takes tax from your income which you can see on your payslip. Tax relief means that some of your money that would have gone to the government as tax now goes into your pension pot instead. In our auto-enrolment scheme, the tax relief goes into your pension through a ‘relief at source’ arrangement. This means if you are a basic rate tax payer, you don’t need to do anything the tax relief will be paid automatically into your pension.

If you are a higher or additional rate tax payer, to get full tax relief you need to claim back some of your tax from the government. This is because tax relief is added to your pension at the basic rate of 20 per cent. To get the full tax relief that is due to you, you need to claim back the difference on your annual tax return, or alternatively, if you are a higher rate tax payer, you can contact HM Revenue & Customs

More information on how ‘relief at source’ works can be found at www.direct.gov.uk/workplacepensiontaxrelief

3 - Is there a maximum annual contribution value?

No, the maximum contribution limit was removed fromApril  2017.

4 - What happens if an employee is auto-enrolled or elects to join NEST but their qualifying earnings reduce?

Contributions are based on qualifying earnings between £5,876 (the lower threshold) and £45,000 (the upper threshold) (for the tax year 2017/18). These are annualised figures and will be pro-rated dependant on the actual pay frequency as follows:

Monthly paid – between £499 and £3,750

Weekly paid – between £113 and £866

If the actual qualifying pay falls below the lower level, then in that particular pay period then no contributions will be deducted. The employee remains a member (unless they opt out or cease membership via NEST) and their qualifying pay will be assessed in their next pay reference period (weekly or monthly) with contributions deducted if they are once again above the lower threshold.

5 - What happens if earnings are above the upper threshold?

This is the capped value and though the employee can earn above this value, contributions only apply up to this level from the lower threshold.