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NEST - what's in a name?
15 March 2010
Pensions minister Angela Eagle earlier this year announced the
new, permanent name for the personal accounts scheme – NEST
(National Employment Savings Trust), but does this rebrand go
further than just the name?
NEST is a national trust-based, defined contribution,
occupational pension scheme aimed at people on a low to moderate
income who do not have access to a quality work place pension. It
will be available for employers to use from 1 October 2012 over a
four-year staging process.
How does this affect you?
All employers will need to offer a Qualifying Workplace Pension
Scheme (QWPS) by October 2012. Those employers that do not
currently offer a qualifying scheme will need to make changes in
order to comply with the new rules. This could include budgeting
for and introducing an employer pension contribution over the next
two years. Employers will need to make the specified pension
contributions whether they pay them into an approved NEST scheme or
an alternative qualifying scheme.
Additionally, employers must put into place an automatic
enrolment facility for all members of staff. The deadline for
introducing an auto-enrolment facility will be dependant on the
number of employees within the company and the first phase will
start on 1 October 2012. Auto-enrolment will mean that eligible
employees are automatically enrolled into their employer's
qualifying pension scheme without any active decision on their
part.
Staging process
Although the auto-enrolment rule comes into force from October
2012, employers will be phased in to the regime over a four-year
period from this date, typically according to their PAYE size. For
example, an employer with approximately 120,000 or more employees
would have an auto-enrolment implementation start date of 1 October
2012; whereas 1000 employees would have an auto-enrolment
implementation start date of 1 October 2013.
Eligible jobholders
Employees that meet certain criteria will have to be
automatically enrolled onto a qualifying pension scheme. An
eligible jobholder is an employee or worker who:
- Works (or ordinarily works) in Great Britain under a
contract
- Is aged between 22 and state pension age
- Earns more than around £5,035 per annum including bonuses,
overtime and statutory maternity, paternity and adoption pay
Qualifying scheme
A qualifying scheme is an occupational or personal pension
scheme which is a registered pension scheme under the Finance Act
2004 and satisfies the quality requirements which include:
- Defined contribution pension schemes, a minimum of 3% employer
contributions and 4% employee contributions
- Defined benefit pension schemes, a minimum of 1/120th of
average qualifying earnings (in the last three years before the end
of pensionable service) times years of pensionable service (up to a
maximum of 40 years)
- Personal pension schemes, a minimum of 3% employer
contributions with the jobholder making up any shortfall if the
total contributions are less than 8%
What will this cost?
The employer contributions will be increased gradually, from the
auto-enrolment implementation date applicable to the employer, from
1% to 3%.
Contributions are calculated in respect of qualifying earnings -
these are set by the upper and lower earnings limit for national
insurance contributions in 2006/07 (£5035 – £33540); the limits
will be subject to annual review.
What considerations do you need to make
now?
It’s important to think about the cost of upgrading existing
systems or putting into place new measures in order to comply with
the new rules. Employers would benefit from considering these
issues now, well in advance of October 2012.
We ask some of the key questions you need to consider in the run
up to 2012:
- Do you have an existing pension scheme or will you enrol
employees onto NEST?
- Do you currently make employer contributions to pensions? If
not, this will need to be budgeted for.
- Is your existing pension scheme compliant? If not, you need to
develop a strategy now on how to deal with this so that it is
compliant by 2012.
- How do you intend to meet the auto-enrolment requirement?
- Do you intend to use an existing pension scheme to meet the
auto enrolment requirement? If so:
- Does it satisfy the quality
requirements?
- Foes it satisfy the provisions
allowing employers with high quality schemes to postpone
auto-enrolment for three months?
- Will any rule changes need to be
made?
- Does it have a waiting period for new
joiners? How is it intended that this will fit in with the
auto-enrolment requirement?
- Do you need to consider amending your
administration systems to enable auto-enrolment and what will the
knock-on effect of this be?
- What pension arrangements will you
put in place for employees that earn less than the lower earnings
limit (i.e. £5035)?
- How do employees opt-out/in to the scheme and what
communication will this need?
- How do employees re-enrol if they have opted out and how will
you communicate this to your employees?
If you have any queries or would like to find out how
NEST/auto-enrolment will affect you, we would be happy to talk to
you. We can also advise if your current pension arrangements are
sufficient to comply with the auto-enrolment requirements.
talk to us
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