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August 30, 2013 9:31 pm
Thousands of families in the UK will have to start paying money into a pension scheme for their nanny within the next two years, adding another burden for parents who already face some of the most expensive childcare costs in the world.
Based on the average salary of a central London nanny, families will need to find an additional £340 a year to pay into a pension when the scheme is first introduced in 2015, rising to more than £1,000 by the time it is fully rolled out in 2018.
The Pensions Regulator said that it has not yet informed families of their obligations but would do so in the months leading up to the scheme’s introduction. Families who try to convince their nannies to opt out of the pension plan or refuse to pay run the risk of hefty fines.
Enrolment of all workers into employer-sponsored pension schemes is being introduced by the government to tackle a dramatic fall in retirement saving.
There are an estimated 60,000 nannies working in the UK according to Nannytax, a payroll service for families. In central London nannies earned an average gross salary of £34,000 last year, meaning that for many families the cost of childcare can cancel out or even exceed the taxed income of one working parent.
Natasha Ray, 42, a GP with two children under five, said it made no financial sense to return to work full-time after she started a family.
“I think it’s fair that my nanny has a workplace pension, but I can’t see why families have to pay tax for their nanny out of income that has already been taxed. I see so many of my friends cut back or give up work because the costs don’t add up.
“We encourage girls to work hard, go to university and get good jobs only for them to drop out later on because the cost of childcare is so high.”
Introduction of employer pension plans for small employers will be staggered between 2015 and 2018, and families who have employed a child carer for a number of years are likely to be affected first.
Any worker aged 16 and older who earns more than £5,668 a year will be able to opt into a pension plan, while those aged 22 or over who earn more than £9,440 must be enrolled by their employer unless they opt out. Employers must pay in at least 1 per cent of their employee’s gross salary, rising to 3 per cent by the end of 2018.
Last year HMRC announced a crackdown on households dodging national insurance and employers’ tax payments for their nannies after research found that many were choosing to pay wages cash-in-hand.
Employment agencies say they have seen a substantial reduction in the numbers of families avoiding tax following the decision, while companies that arrange payroll services for small employers are reporting a substantial rise in demand for their services.
Nannytax says it has seen a 10 per cent increase in new clients during the past 12 months, while NannyPaye, a rival, reported a 35 per cent rise.
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