If you read nothing else, read this . . .
• The national employment savings trust (Nest) is a government-devised pension scheme available as an option to employers to meet their obligations under the 2012 pension reforms’ auto-enrolment rules. All employers will eventually have to contribute 3% to an eligible employee’s pot.
• Nest is a low-cost option, with annual management fees of 0.3% and a temporary contribution fee of 1.8%.
• Nest members can move their account with them when they change jobs, which reduces the administrative burden for employers.
The race is on to comply with the pension reforms, and Nest will be a good option for many employers, says Sally Hamilton
A year from now, on 1 October 2012, the UK’s biggest employers, with 120,000 or more employees, will become the first that must comply with pension reforms enforcing the automatic enrolment of workers into an occupational pension scheme.
The legislation, which arose from the 2005 Turner Report on pensions, is aimed at getting the six to eight million employees who currently have little or no pension to start saving for their retirement.
By October 2017, all employers must be making a minimum 3% contribution based on earnings, employees must add 4% and 1% is provided in tax relief, or employers must put their staff into an appropriate defined benefit (DB) scheme. These minimum contribution levels will be phased in up to that date.
To help employers with no pensions provision in place or whose schemes are not appropriate for the targeted staff, or those that want to run a separate low-cost scheme for lower-paid staff, the government has set up the national employment savings trust (Nest). This is just one option available to employers, which can use any pensions provider that offers an appropriate scheme.
Nest, like all schemes under the new regime, will be semi-compulsory, with staff enrolled automatically within a maximum of three months after joining an organisation. They then have a month in which to opt out.
Share views on Nest
Employers will be able to share their ideas and views about Nest through the Nest Corporation’s employer and member panels, which were announced in September 2011.
Tim Jones, chief executive of Nest Corporation, describes Nest as a ‘fresh start’ that aims to “bring quality corporate pension schemes to the corner shop”.
He adds the portability of Nest makes it particularly appropriate for large employers in some industries. “Nest will be convenient for employers with a big turnover of staff, such as in retail. That can be a problem with other types of pension when someone moves on, but Nest stays with the person.”
Malcolm McLean, pensions consultant at actuary Barnett Waddington, says: “Nest is essentially a default option, a cheap and cheerful pension arrangement with restrictions and limits on contributions.”
Nest’s annual management charge is set at just 0.3%, although there is a 1.8% charge for each contribution made until its loan from the government is paid off, says Jones.
Tom McPhail, pensions specialist at Hargreaves Lansdown, believes Nest will sweep up smaller employers and those that have not made contributions before, essentially those whose profile might not be lucrative enough for private sector providers.
The Department for Work and Pensions estimates Nest and other auto-enrolment schemes will add about 0.5% a year to employers’ costs. McLean observes: “Undoubtedly, they will be looking to pay for it by keeping down salaries or other costs.”
Read also Crucial choices ahead of pension reforms
Read about the 2012 pension reforms