If you read nothing else, read this….
- National employment savings trust (Nest) is a low-cost pension scheme designed to help employers meet new legal duties, such as auto-enrolment and compulsory contributions, that will be introduced in October 2012.
- Employers can either change their existing pensions to comply with the reforms, or use Nest.
- The implementation of Nest is a joint effort between the Department for Work and Pensions, The Pensions Regulator and Nest Corporation.
The Nest scheme is under scrutiny in a review of the 2012 pension reforms, says Jennifer Paterson
As the coalition government started its spring clean on 24 June, the national employment savings trust (Nest) was in danger of being swept away. Although the government confirmed it broadly supported the 2012 pension reforms contained in the Pensions Act 2008, it also stated that circumstances had changed since the Pensions Commission published its recommendations in 2005. A review is therefore being conducted and will be concluded by 30 September.
The development of Nest is well under way, with the Department for Work and Pensions (DWP), the Pensions Regulator and Nest Corporation working together on its implementation. Robin Hames, head of technical, marketing and research at Bluefin Corporate Consulting, says: “Effectively, the review is looking at the whole piece in terms of what the economic downturn means for Nest and the likely cost to the taxpayer.”
The main focus of the review, conducted by an independent panel, is to ensure auto-enrolment into a workplace pension is practical. It will also assess the availability and capacity of pension providers, other than Nest, to serve the auto-enrolled population.
The review will also consider whether Nest is the best way to deliver access to workplace pension savings for staff who are not already in a scheme. Tim Middleton, technical consultant at the Pensions Management Institute, says:
“They are looking at Nest to see if it is still a viable option and whether we could proceed without Nest just by using contract-based pension arrangements.”
Nest is low-cost and portable
Nest is a low-cost, portable scheme any employer can choose to offer staff to meet its legal duties from October 2012. It is designed for employees who earn more than about £5,000 and fall between the ages of 22 and the state pension age. Staff not already in a workplace pension will be gradually enrolled into Nest schemes, with those at large organisations joining in October 2012, the majority joining by mid-2014, and the rest joining by February 2016. Organisations that are established after 2012 will have until October 2016 to get their staff auto-enrolled into a pension.
But employers do not have a mandatory obligation to offer Nest. Paul Macro, senior consultant at Towers Watson, says: “If an employer has already got its own pension arrangement, it is much more likely to use its existing pension scheme to bring in all those people not currently covered. The Nest scheme is an easy option for organisations that have no pension scheme at present.”
Nest will be offered by Nest Corporation (formerly the Personal Accounts Delivery Authority) and John Lawson, head of pensions policy at Standard Life, says: “It has got a public service obligation to take on business from any employer.”
So, to appeal to employers with no pension plan in place, Nest’s charging structure must be kept low. In March, the government said there would be an annual charge of 0.3% on members’ funds to cover the cost of operation. Until the set-up costs have been met, members will also have a further charge of about 2% on contributions.
Heather Tilston, head of media and PR for Nest Corporation, says: “Until Nest is fully established, it faces an inevitable gap between costs and revenues.”
Nest will comply with the same minimum contribution levels to be phased in for all workplace pensions from October 2012 until October 2016. Initially, employer and staff contributions will both be 1%. From October 2016 to October 2017, they will be 2% and 3%, respectively, and from October 2017, 4% for employees and 3% for employers (plus a 1% tax break, making a total of 8%).
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