Feathering your NEST
Following a government review of pension provisions for employees, it has been decided that more of a ‘stick’ approach (as opposed to just the ‘carrot’ of tax relief) is going to be needed to get more people to make pension provision. The Government estimates that about seven million people are currently under saving for retirement and a major part of the reform is the Government’s ideas for making it easier for these people to save for retirement. The proposals will have wide ranging effects across every field of UK business as the onus will be put on employers to help encourage more people to save. However, the headline that employers will have to start making pension contributions for all of their employees from 2012 are somewhat misleading as the majority of employers will not need to comply with the rules from that date. The start date for the roll out of the scheme is October 2012 but this will impact on employers with 120,000 employees or more. For those with a more modest workforce the start date varies, for example those with less than 500 employees the date is 1 January 2014 and for those with less than 50 employees the earliest start date is 1 March 2014. If there is already a pension scheme that meets the requirement in place – fine, but if this is not the case, then the new rules will apply to all employees who are aged at least 22 years and the State Pension age and earn over £7,475 gross a year. Employees will be able to opt out of the scheme if they so wish. Minimum contributions levels for qualifying schemes will be 8%, made up of employee and employer contributions Minimum Employee Tax Relief Employer Contribution Pays Minimum Contribution 8% 4% 1% 3% The qualifying scheme may be the existing employer pension scheme if it meets certain conditions, or if an employer does not have a qualifying scheme they will have to set one up. One of the pension schemes you will be able to choose to meet the new legal duties is known as NEST (National Employment Savings Trust). It is planned that NEST will launch in spring 2011. NEST will be a new workplace pension scheme that's being designed specifically to meet the needs of low-to-moderate earners and their employers. Where companies already have a suitable scheme in place, they will need to think how the reforms apply to it, for example, the joining process and contribution levels. Where they do not have a scheme, it will need to be decided what pension scheme or schemes they want to use for auto-enrolment. Advisers and pensions professionals play a central role in work-based pensions. Getting advice early makes a lot of sense so that you are fully informed and have time to get your ducks in a line ready for NESTing!