We can’t deny it anymore, we are living in an ageing population and the government has become concerned that the UK’s workforce is not putting enough away for their later years. As a result, the automatic pension enrolment scheme has come into force. It started being implemented in October 2012 and all firms should be operating under this scheme by 2018. But as a contractor how exactly will these changes affect you?
What is automatic pension enrolment?
The automatic pension enrolment scheme means it is compulsory for employers to automatically enrol all eligible employees in a pension scheme, although employees do have the option to opt out if they wish. To be eligible for auto-enrolment employees must be:
- Aged between 22 and State Pension age
- Earn more than £10,000 a year
- Work in the UK
How will automatic pension enrolment affect umbrella company contractors?
If you are contracting through an umbrella company then you are classed as an employee of the umbrella company that you are working under. Umbrella company contractors will be automatically enrolled in a pension scheme in the same way that employees will be, but you do have the option to opt out of the scheme.
For more information about contracting through an umbrella company, you may want to visit our umbrella company hub page.
How will automatic pension enrolment affect limited company contractors?
Limited company contractors may have already received a letter from The Pensions Regulator regarding how they are going to comply with the new auto-enrolment scheme. The answer will depend on the structure of your limited company, how many directors your company has and whether your company has any employees.
If your company has one director
If you are the sole director of your limited company then your company will not have automatic enrolment duties because you, the director will not be classed as an employee as you are not working under a contract of employment.
You will, however, need to contact The Pensions Regulator in writing to inform them that you believe you should be exempt from pension auto-enrolment, quoting your letter code, PAYE reference and Companies House number. Once you have received confirmation from The Pensions Regulator you will be able to continue with your pension contributions as you wish.
If your company has more than one director
If your limited company has more than one director (for example a husband and wife) then the company will not have any pension enrolment duties, as long as none of the directors has an employment contract and the company has no other employees with a contract of employment.
If the company has a number of directors and only one has a contract of employment with the company then the company will still be exempt from pension auto-enrolment.
As above if you believe that your company does not have any pension enrolment duties then you will need to inform The Pensions Regulator in writing.
If your company has shareholders
Company shareholders are generally not on the company payroll and do not have a contract of employment with the company and so are not classed as employees. If your company has no employees then you will typically be exempt from pension auto-enrolment duties, but you will need to inform The Pensions Regulator of this in writing.
How do I inform The Pensions Regulator that my company is exempt from pension auto-enrolment?
If your company does not employ any staff members then your company will not have any pension auto-enrolment duties, as long as you meet one of the following criteria:
- You are the sole company director with no other members of staff
- Your company has multiple directors, but none have a contract of employment
- Your company has multiple directors, but only one has a contract of employment
- Your company has stopped trading
- Your company has gone into liquidation
- Your company has been dissolved
If one of the above applies to you then you will need to inform The Pensions Regulator that you are not an employer and are exempt from pension auto-enrolment. To do this you will need to contact them in writing via the email address on your letter, if you have not received a letter yet you can contact them through their website.
When contacting The Pensions Regulator you will need to confirm the following:
- Limited company name
- Letter code – this is the 10-digit number, which can be found on all letters from The Pensions Regulator regarding auto-enrolment
- Employer’s PAYE reference
- Companies House Number