PENSIONS, PARENTS AND NANNIES
Within the next 5 years all UK employers will be required under the Pensions Act 2008 to automatically enrol their workers into a qualifying pension scheme, and to contribute to that pension. The timing of implementation depends upon the size of the employer but families who have employed their nanny prior to April 2012 will have to pay into the pension scheme from as early as June 2015, unless they contact the Pensions Regulator to modify their staging date. Those who have enlisted a nanny since that date then will not have to pay until April 2017.
To find out by what date you need to comply with the new regulations you must register with the Pensions Regulator(http://www.thepensionsregulator.gov.uk/employers/what-is-my-staging-date.aspx).
Then a family must find a scheme, open an account and write to their nanny telling them they are going to be signed up.
Eligibility: An eligible worker is one who:
Is not already in a workplace pension scheme;
At least 22years old;
Has not yet reached State Pension age;
Earns more than the minimum earnings threshold; and
Works or ordinarily works in the UK according to their contract.
The proposed upper and lower limits of qualifying earnings have been set at an annual gross salary of £5,668 to £41,450 (for tax year 2013 to 2014). However, gross earnings need to be at or above £9,440(currently) before auto-enrolment triggers. The pension scheme must be a qualifying scheme, meeting certain Government standards.
In order to qualify, minimum contributions have to be made into the scheme, or it must provide a minimum rate at which benefits will build up. For parents, who employ nannies, the only really practical scheme available currently is NEST (the National Employment Savings Trust Corporation) (www.nestpensions.org.uk). Obligations under the Pension Act 2008 apply whether the employee is temporary or permanent as long as they qualify as an eligible worker.
Please note that anyone employed for less than three months will not need to be enrolled by their employer automatically,although they can join of their own accord and attract employer contributions too.
Contributions: Contributions will be based on gross earnings, including overtime and bonuses within the qualifying earnings band. It is therefore very important to agree a gross salary with your nanny. Currently, employees have to pay in 1% of their gross salary, including tax relief, into the pension scheme whilst employers have to contribute another 1%. By October 2018 the total amount which will have to be paid into the scheme is due to rise to 8% (from 5% between October 2017to September 2018), of which the employer pays 3%, the employee pays 4% and the government pays a further 1% in tax relief. These minimum percentages do not apply to your nanny’s entire salary but only on what they earn over a minimum (currently £5,668) up to a maximum limit (currently £41,450). For example, for a nanny who earns £18,000 a year, the minimum percentages apply to the difference between £18,000 and £5,668,which is £12,332. In this example, the nanny would have to pay £493.28 from his/her salary and the employer would have to pay £369.96. The consequence is that either parents will end up paying more overall or nannies will receive less net pay as parents cannot afford to increase their overall cost of employing a nanny.
Obligations: The Pensions Regulator has said it will write to all employers 12 months and then 3months in advance of the date by which they are due to enroll their employees into a pension scheme, to ensure employers are aware of their duties and to explain what needs to be done to comply with the requirements. When an employer has completed the automatic enrolment process, they will then have to register with the Pensions Regulator. In addition, as an employer, including a parent employing a nanny, will also have to keep records of the automatic enrolment process. If you fail to comply with your duties, the Pensions Regulator may take enforcement action and issue a notice and / or a penalty.
Opt-out: There is an option for employees to opt-out and they have a month to opt out from the day they officially become a member of the scheme. So an employer will still have to set up a pension scheme and register before the employee can opt out.Plus an employer will still have to keep records even if their employee(s) have opted-out. Any payments already made into the scheme will be refunded. Employees who opt out can rejoin at any time and employers will also have a duty to automatically enroll employees back into the scheme approximately every three years provided that the employee is still eligible.
Employers will not be able to ask potential nannies at interview or current nannies if they plan to opt out of auto-enrolment, nor will they be able to offer inducement to opt out such as higher salaries or one-off bonuses.