NEST – Frequenty Asked Questions and Answers (January 2010) |
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1 What is the National Employment Savings Trust (NEST)?
2 Why is the Government introducing NEST?
3 What happens if there is a change in Government?
4 What is auto-enrolment?
5 Will this impact on my workforce and me?
6 Can I ignore NEST?
7 How and why do I class my workforce?
8 When do I need to do something?
9 What should I tell my employees?
10 What should I be doing now?
11 What are the charges?
12 What will the cost be to me?
13 What phase will I be in?
14 What is the Pension Quality Mark?
15 How does NEST affect my existing pension scheme?
16 Can I transfer my old pension plans in?
On the 7 January 2010, Pensions Minister Angela Eagle announced that Personal Accounts were to be rebranded as the National Employment Savings Trust (NEST).
Essentially, from 2012 employers in the UK will be required by law to provide a private sector qualifying workplace pension scheme for their eligible employees. Millions of employees will become eligible for auto-enrolment into a private sector qualifying workplace pension scheme on day one.
Employees will automatically be enrolled into either a qualifying pension scheme or a National Employment Savings Trust. There will not be a waiting period before auto enrolment into National Employment Savings Trusts.
If employees do not want to become members of a pension scheme, they can choose to opt out but if they choose to stay in then the employer will have to contribute 3% of band earnings, which are being introduced on a sliding scale.
When fully implemented, employers will have to contribute a minimum of 3% of their workers’ pay, with employees putting in 5% minimum, including tax relief.
2 Why is the Government introducing NEST?
The Government’s introduction of NEST is intended to introduce a straightforward opportunity for employees to contribute to a high-quality, low-cost savings vehicle. Their intention is to increase retirement savings throughout the UK and reduce the reliance on the State.
NEST is aimed primarily at the lower to middle income earners with the intention that they begin saving towards their own retirement.
The Government has tried to encourage people to save for retirement before with the introduction of stakeholder pension schemes in 2001 but, as this was not a great success, they are now introducing mandatory pension contributions for all employers in the UK.
3 What happens if there is a change in Government?
In October 2009, Theresa May confirmed that the Conservative Party supported auto-enrolment and personal accounts (now NEST), so a change of Government should not alter the introduction of NEST.
All employees will be automatically enrolled into a National Employment Savings Trust on their first day of employment; there will not be a waiting period.
If employees do not wish to become members of a pension scheme, they can choose to opt out, so in effect this is not compulsory for employees but it is compulsory for employers.
Those who opt out will be automatically re-enrolled after three years. They will again have the chance to opt out at this stage.
It is important to note that the responsibility for the auto-enrolment of the many millions of employees falls to employers, not the Government, or those who will be running the auto-enrolment process.
5 Will this impact on my workforce and me?
The simple answer is, yes it will.
For many employers and their employees this will be the first time they will be contributing to a pension. The administration, collection and contributions are all the responsibility of the employer and the introduction of NESTs will cause a massive increase in workloads.
The answer is NO.
The introduction of NEST and auto-enrolment will become a reality. Work and Pensions Secretary, Yvette Cooper, has put the final draft regulations for the auto-enrolment NEST before Parliament.
7 How and why do I class my workforce?
You will need to classify your workforce as either:
Worker – has a contract with an employer to work for them aged 16-75, working or ordinarily working in the UK
Jobholder – as worker and has qualifying earnings
Eligible Jobholder – as jobholder and aged 22 to state pension age
All Eligible Jobholders will have to be auto-enrolled in NESTs and if Workers, or Jobholders become Eligible Jobholders then they must also be auto-enrolled. Auto-enrolment is from day one of employment, or being classed as an Eligible Jobholder.
Qualifying earnings are defined as currently between £5,035 and £33,540 and include bonus, commission and overtime.
8 When do I need to do something?
The introduction of NESTs is a reality and you need to start planning now for their introduction, whether it is planning for the cost of making pension contributions for your workforce for the first time, or restructuring your current pension scheme to become a qualifying pension scheme.
Employers’ responsibilities start from October 2012 and will be phased in over four years. The phasing will start with the largest employers, those with over 250 employees, followed by medium-sized employers with between 50 and 250 employees, and then smaller companies towards the end. The Government is yet to confirm exactly when employers’ responsibilities will be phased in between October 2012 and October 2016.
During this employer staging period, employers and employees will have to pay combined minimum contributions of 2% of band earnings, rising to 5% in October 2016, with the full 8% minimum contributions starting in October 2017.
9 What should I tell my employees?
Your employees should start to receive information about the introduction of NEST as soon as possible. Although the Government is aiming to launch an easy to understand pension scheme targeted at lower to middle income earners, in our opinion both employers and their staff should receive professional independent advice on the introduction of NEST and the impact it will have.
10 What should I be doing now?
You should be looking at the impact the 3% of band earnings pension contribution will have on your business, considering how to categorise your workforce and whether your current pension scheme if you have one, could become a Qualifying Pension Scheme. Cartlidge Morland can help with all these areas – consider talking to us so we can help.
The exact level of charges has not yet been announced but we expect it to be in the region of 0.5% with the aim to reduce this over time. This charge does not factor in the need for advice for both employers and employees. The exact charges will not be known until the end of 2010.
12 What will the cost be to my organisation?
Apart from the obvious cost of the 3% of band earnings pension contribution, there will be the added cost of the extra administration required in auto-enrolling staff in NEST and the day-to-day questions and administration of the scheme.
This will depend on the number of employees you have. Work and Pensions Secretary Yvette Cooper announced, when submitting final draft regulations, that small employers with fewer than 50 workers will not have to take part in the scheme until sometime between March 2014 and February 2016.
Employers’ responsibilities start from October 2012 and will be staged in over four years. It will start with the largest employers, those with over 250 employees, followed by medium-sized employers with between 50 and 250 employees, with smaller companies towards the end. The Government is yet to confirm exactly when employers’ responsibilities will be phased in between October 2012 and October 2016.
During this employer staging period, employers and employees will have to pay combined minimum contributions of 2% of band earnings, rising to 5% in October 2016, with the full 8% minimum contributions starting in October 2017.
14 What is the Pension Quality Mark?
Employers can now apply for a Pension Quality Mark (PQM), which has been set up to promote good quality defined contribution workplace pension schemes by setting standards for attainment of the ‘mark’, which can then be used on pension scheme documentation, job advertisements and web sites.
The 3 criteria that need to be met are:
contribution standards
governance standards
communication standards
The cost of applying for a Pension Quality Mark and the annual subscription is £250.
It may be that those pension schemes that have been awarded a Pension Quality Mark are classified by the Government as a Qualifying Pension Scheme. This is however not confirmed and we are awaiting details of the requirements for a scheme to be classed as a Qualifying Pension Scheme.
15 How does NEST affect my current pension scheme?
If your current pension scheme is not deemed to be a Qualifying Pension Scheme then your staff should be automatically enrolled in a NEST. We believe that if a pension scheme is awarded a Pension Quality Mark then it will classed as a Qualifying Pension Scheme and employees will then not need to be auto-enrolled into NEST. The Government has yet to confirm what will constitute a Qualifying Pension Scheme.
16 Can I transfer my old pension plans in?
It has been confirmed that NEST will not accept any transfers from previous pension plans and cannot be transferred out unless the employee reaches retirement age of 55 onwards.
Contact us to find out how we can help you with this potential minefield.
Alex Reeves
Managing Director - Employee Benefits
Email: employeebenefits@cartlidgemorland.co.uk
Call: 020 7709 5560
Phone us on 020 7709 5560 or complete the online contact form
