Contributing to a Pension Scheme

Nearly everyone who is in work in the UK should have access to their workplace pension scheme and should be automatically enrolled in it when they start work with the company. This is a fairly recent development.

There are a few exemptions, which seem to be mostly aimed at young seasonal workers who help to bring in the harvests etc and those who are working through limited companies.

Exemptions to Workplace Pension Scheme:

• There is a threshold of £10,000 per year that needs to be paid before an employee will be automatically offered a workplace pension.

• To qualify, an employee must also be aged somewhere between 22 and the state pension age.

• The employee must be employed as, and recognised as “a worker”. This means that they must be personally contracting their labour with the employer and not be doing this through a third-party such as a limited company.

• The employee doesn't ordinarily work in the UK. This normally applies with large multinational companies which have employees in many different offices all over the world. The main test of this appears to be where the employee is based.

Employer Contributions to the Employer Pension Scheme

Employer contributions to a registered employer pension scheme or your own personal pension policies are not liable for tax or National Insurance Contributions.

Please be aware that while your employer can contribute to your personal pension scheme, these contributions are combined with your own for the purpose of measuring your total pension input against the 'annual allowance'.

The annual allowance is the total amount that can be contributed to your personal pension tax free. This takes into account all of the contributions, from the employer, the employee and any third-party that tops up your pension. Once the threshold has been passed, you can still contribute more money, it just won't be tax-free past the point of the annual allowance.

The amount that is paid into your pension pot by both yourself and your employer will depend on whether you are on a “defined contribution scheme” or a “defined benefit pension”. These sound rather similar but are very different in their scope.

The defined contribution scheme or pension is based on a total that is received from your employer, yourself and any third party contributor.

The defined benefit pensions can give tax free savings on up to 100% of your earnings which are invested into a pensions scheme. The maximum amount of money currently allowable in these pension schemes is £40,000 per annum for most people.

Lawrence Grant Accountants

Lawrence Grant Accountants are experts with many years of standing in the area of pensions and can help to guide you through the pitfalls of negotiating your pension scheme and understanding what you can and can't do. It is important to understand where the taxation benefits stop so that you can avoid wasting money and look for better and more viable ways of

helping it to grow for your future.