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How will auto-enrolment and pension contributions affect you?

Posted on by Cheryl Black

Auto-enrolment is set to become a hot-topic over the coming months. The Government is looking to make it compulsory for all employers to provide a workplace pension that qualifying employees must pay into.

The rules require all ‘jobholders’ to be automatically enrolled into either the state provided pension scheme (known as NEST), or an employer provided equivalent with similar benefits.

A ‘jobholder’ is classed as any UK resident over the age of 22 earning over £9,440 a year in 2013/14 (£10,000 a year in 2014/15).

The auto-enrollment process for companies with fewer than 50 employees will not begin until 2015 at the earliest. If you are taking less than the tax free personal allowance from your company as salary, you can ‘opt out’ from these pension contributions. Dividends do not count as earnings for auto-enrollment.

Pension contributions can be a powerful profit extraction tool. If you were to setup a company pension scheme you could make contributions of up to £50,000 per year (£40,000 in 2014/15). This would be a tax deductible expense.

Your pension contributions do not just have to be made by the company if you wish to gain tax relief. If you pay into a private pension, your basic rate band for income tax is increased by the amount of your gross contributions. This means you can withdraw more tax free dividends from your company.

If you are interested in paying into a pension we advise you to speak to a Financial Adviser regulated by the Financial Services Authority.

Simplyco are expert contractor accountants and keep the clients they work with in the loop about any upcoming changes to legislation. If you’re a contractor, freelancer, interim, locum or self-employed worker and would like to see how our services could help you, please give us a call on 01900 898 440 or email

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