Pensions for Nannies - what do you think?

[ClaireZest]

I posted a question to Rachel Reeves regarding Labour's proposals for workplace pensions for nannies. It's something I'm starting to come across more and more and I can see it becoming a real problem (ie higher costs and extra administration for the employers and less take home pay for the nannies).

Here's my question and how she answered:

ClaireZest:
"Could you please tell us what workplace pension provision Labour will propose for nannies and their employers?
I work closely with parents who employ nannies and a lot of them are concerned that employment costs will rise dramatically if the Automatic Enrolment workplace pensions regulations will continue to apply should we see a change in government."

Rachel Reeves:
"I think it is right that people who are working get access to workplace pensions and that people who employ people contribute to that. We legislated for it when we were previously in Government and it is being rolled out at the moment. By 2017 if you employ a nanny then you will pay towards their pension (the contribution is about 3% of their salary above the NI threshold). They will also pay in and they will get some tax relief as well."

I just wondered what the parents employing a nanny and the nannies among you think about this?

If you are considering employing a nanny for the first time, would you be put off with then having to set up a pension scheme for her/him too?

3%, I thought it was less than that initially.

I feel it is good to encourage everyone to pay onto a pension. However what will happen to those of us who already do, will we then have multiple pension plans?

Employers contributing towards a pension is great, from a nannies point of view but it is an added cost from a parents point of view. Not sure employers should be forced to pay into their employees pension.

NEST will provide the pension scheme for small employers, so no huge costs involved in admin terms at the look of it. Not sure how the charges (which are deducted from the pension pot) compare with other schemes, 0.3% annual plus 1.8% of each contribution.

Would like to see more effort going into the employment status of nannies. Rachel did answer my question on that topic but will they really be able to clamp down on bogus self employment? Will employers having to contribute to pensions just make bogus self employment happen even more?

I think it's reasonable to expect all employers to contribute an element toward their employee's pension, therefore being a nanny employer shouldn't make a difference to that.

I would like to see a sliding scale of the minimum amount based on the size of the company. To be honest, 3% seems to me to be a reasonable amount as the minimum.. much less and it wouldn't be worthwhile doing. As an employer, you could also contribute more if you wished, which would be a good incentive to keep a good nanny. I wouldn't (by choice) join a company that didn't offer a good contributory pension scheme so I don't see why nannies should be any different.

Nannynick; I have several pension plans from different companies over the years, so I think its probably quite usual to have more than one.

Yes, I have two plans already, only one actively paying into. I just wonder if it's better to pay into an existing one, or to start a new one?

I agree that nannies should not be any different to other workers but what will be the impact on salaries?

I can't say that I'm jumping up and down about anything that increases the cost of employing a nanny to be honest but it's fair that they should receive a contribution towards one in the same way as any other job. If I had to personally set up an actual scheme then I would run a mile. I expect a nanny to sign up to a scheme and to also contribute before I would do so.

I do think that the government needs to treat nanny employers like any small employer though and offer the same discounted NI and SSP provisions. It is taking advantage the piss to pick and choose which areas to apply including pensions.

In any case, by the time it rolls around the tax provisions/allowances around childcare to replace childcare vouchers will just about cover NI and pension provision I expect, and possibly not even that much. I am very hopeful that I can manage without a FT nanny by then as it is crucifying us.

Salaries in real cash terms will dip slightly I expect - employers who are not operating in the black market will look at the total cost of employing a nanny to them and not a NET hourly rate. They will [if they have any sense] offer a salary as a package - £x per annum, contributory pension to the value of £1-1500k+ per annum, any other perks and highlight the full value of the package to the nanny.

They will think in terms of their total cost and budgets being finite for most people may well be forced into offering less as a base salary.

For people offering /employing a part-time nanny circa 2 days a week, the amounts involved may be negligible enough to simply suck it up.

Agree with Treads on the treat us like employers then if we have to act like them in every other way. The NiCs thing really really yanks my chain and given that my nanny will have had 5 weeks of sickness in the past year (which I have mostly paid in full despite not being contractually obliged because I'm a nice person), the changes to the SSP regime really pissed me off...

I will obviously comply but it will be at the expense of the take home - at least if I were to change nanny in the same year. Nanny may also get a reduced payrise the year it kicks in...

As a nanny I want a pension yes, the patents who employs us have their huge pension plans and bouness.

It's fine, but I will have to have a frank discussion with my nanny to the effect that the pension is a payrise of x% and therefore she needs to choose between me contributing to the pension or giving her the payrise in her pocket. Won't be able to do both, I pay her over half of my take home salary as it is (and I work 3d a week and only have her 2d).

Generally I think it is a good thing for employers to have to pay some limited amount into employee pensions and I don't think nannies should be exempt from this. The issue with pensions though is you need to contribute a lot over a long time period before you get much back in retirement.

To get an idea I plugged some figures into the government pensions calculator. If a 36 year old woman earning 26k PA puts in 3% with her employer matching and retires at the state pension retirement age of 68 then the income generated is 3651 PA. So you can see people being reluctant to make financial sacrifices now if money is tight for a relatively small income later.

Personally I think we'd probably forgo or reduce any salary rises increases for a year or two in order to offset the additional cost to us. Which might mean a salary decrease in real terms whilst cost to us rises.

If I read correctly, I believe the employee can opt out of joining the pension scheme. My worry is that if I want a pension will that mean future potential employers will opt for the nanny that doesn't. I would hope that my experience (and references etc) would get me a job but £1500 a year is a big difference to most employers.

You'd have to be on 50k before 3% became 1500

It's a difficult one isn't it? Planning for the future is becoming more and more important and I think the workplace pensions are in general a good idea. Having said that, work place pensions are very much geared towards business employers - those who make a profit from what they do. Parents employing a nanny often pay much of their nanny's wages from their own salaries after tax, national insurance and possibly their own pension contributions have come out of it. Is it fair that they are then required to pay their nanny extra in the form of pension contributions too?
I think a proper shake up of the help available towards childcare costs is needed before this would ever be able to work properly for both the parents and the nannies, but sadly I can't see that happening. :-(

It is one of few tax efficient perks available when you pay a nanny. I see it as a win win situation. I set up a stakeholder pension when we first employed a nanny. It was pretty cheap and simple to set up. Our nanny decided on the contribution and I deduct it from her net pay. I have a direct debit so it goes straight to the pension provider each month. They claim back the tax.

So far, I have contributed nothing, but our nanny has a chunk of her pay where for every £80 that she would have got in cash, £100 goes into her pension. I think it is really important that everyone has savings for when they retire, and I would hate our wonderful nanny to be poor in retirement.

Under the new rules, I will give her a 3% pay rise this year which will all go into her pension as the employer contribution. She already contributes more than 5% of her pay. So we will be there in terms of the contributions already.

I just need to ensure that the scheme fulfills the new requirements and fill in a form to certify this.

I am avoiding nest, which is the government scheme, as it has higher charges. There is good evidence that finding a scheme with low charges is really important in terms of the final payout.

So, to me it seems like sensible legislation and not at all complex to organise. No big deal.

As a nanny I pay into my personal pension and Government adds in 20%, so that is the same situation as you have Threeunderthree33 but without my employer doing anything.

You will give a payrise which is great. Not all employers can afford to give a pay rise though, so what would have happened if you could not afford to do so? If you had to make an employer contribution but could not afford it, would you lower the nannies salary?

Good to hear that you have found it easy to set up your own scheme and have found a way to do it with cheaper scheme charges. Would all other employers of nannies be like you though, would they bother finding a low cost scheme to setup, could they afford the employer contributions?

letsplayscrabble it is illegal to incentivise or pressurise an employee to opt out of auto-enrolment, and making a pay rise conditional on opting out would definitely be that! Paying what you would have paid as a payrise into your AE scheme instead would be fine though.

Of course nannies should be entitled to a pension. They are an employee like any other. I know that not all nanny employers are rich, but most are more comfortable than average. Maybe there will be an increase in nanny shares, or nannies being allowed to bring their own children (meaning that a lower basic salary can be paid and the employer can pay into the pension). It is a real worry that so many people are not making provision for old age, and we have to start saving more to prevent a time bomb. I'm sure most employers won't mind - if a nanny has lovingly looked after your DC for years, most people would hate to think about the nanny living their old age in poverty.

Threeunderthree33 how is it a perk for you, it is costing you 3% of her salary!!

mrsmalcolmreynolds

Paying what you would have paid as a payrise into your AE scheme instead would be fine though.

Isn't that what I said?! It's certainly what I meant, in that she can have the money as a pay rise, or paid into her pension, but not both.

That is what I was wondering letsplayscrabble!

And as for purplepumpkins As a nanny I want a pension yes, the patents who employs us have their huge pension plans and bouness.

Sweeping statement or what?!

Sorry I had not finished - sure, there are some nanny employers like that, but many are on the margin between being able to afford a nanny or choosing a nursery. I think it will be boom time for nurseries, personally, many people will just be counted out.

While I understand the argument that nannies are employees like any other and should get the same employment rights, their employers are not like any other. Most employers employ people to help generate profits and pay their employees out of those profits.
Most employers of nannies only employ them to enable them to go to work. They pay them out of their already taxed income. And often people on very modest incomes rely on nannies. My nanny costs take up almost my entire post-tax income.
I think the cost of employing a nanny in order to go to work should be entirely taxdeductible eg. If you earn 40 grand and pay your nanny 20 grand you should be taxed on 20 grand less your personal allowance.

alltheworld - well said, I was trying to think what made we nanny employers different and you are right, we don't generate profits, we use a nanny to enable us to work so the tax deductible idea is a good one.

Isn't that what I said?! It's certainly what I meant, in that she can have the money as a pay rise, or paid into her pension, but not both.

No, you can't do that. That is against the anti inducement legislation which came into effect in July 2012.

You can't offer a pay rise instead of a pension contribution, that's an incentive to not be in a pension and therefore is inducement.

So is it possible to opt out? Our nanny is 57 and having mentionned this to her, she was horrified. SHe pays into two pensions already and does not want to lose 5% of her salary into another one which will effectively earn nothing worthwhile as far as a pension is concerned, bearing in mind her age now.

Yes, there is an opt-out. www.thepensionsregulator.gov.uk/employers/opting-out.aspx

I would wonder if it was possible for employers to pay into an existing pension plan. That might appeal to your nanny, as they could reduce/stop their personal contributions and have contributions from salary instead.