National Employment Savings Trust – NEST

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Pension Compulsion Not enough people are investing towards their retirement and it is certain that State benefits are likely not to be around when most of us come to retire. It is considered that up to 7 million people are not saving enough to fund their retirement. The Government have announced the outcome of the ‘Making Automatic Enrollment into Work Review’ and which recommendations it will adopt from the review. The Pensions Act 2008 includes new duties for employers to start pension saving contributions from 2012 onwards. Automatic enrollment into workplace pension schemes will be staged according to the size of the employer, between October 2012 and September 2016. The largest employers will have to comply first, from October 2012. The purpose of the review was to ensure that there is a balance between costs and benefits for individuals and that automatic enrollment will not create a disproportionate burden on employers. The main points of the Government’s announcement are:
  • The earnings threshold at which an individual is automatically enrolled into a pension will be aligned with the income tax personal allowance (£7,475 in 2011/12)

  • The threshold at which contributions become payable will be aligned with the National Insurance primary threshold (£5,715 in 2010/11)

  • All individuals earning more than the National Insurance primary threshold will be able to opt-in to their employers designated scheme and receive an employer contribution if they want to do so

  • There is no change in the age limits between which automatic enrollment will apply (22 and pensionable age)

  • Individuals must be automatically enrolled before they can opt-out; they cannot choose in advance of being automatically enrolled not to join

  • Very small employers will not be excluded from the requirements

  • The National Employment Savings Trust (NEST) will be retained and measures will be taken to ensure small employers have easy access to it

  • There will be an optional three month waiting period before an employee needs to be automatically enrolled into a pension scheme. During this period, individuals can choose to opt-in and start saving straightaway

  • The largest employers who are due to be brought into the reforms between 1st October 2012 and 1st November 2012 will be allowed to start auto enrollment from as early as July 2012

  • Employers will be given the flexibility to re-enroll employees three months either side of their automatic re-enrollment date

  • The facility for certain employers to postpone automatic enrollment will be removed

  • The process for employers to certify that their money purchase scheme meets the relevant quality requirements will be simplified into a standard three step process
It would seem that the Government are keen for this legislation to be taken up. Certainly from the latest review, the following is certain:
  • There is no allowance for SMEs

  • There is an extended ‘roll-out’ until September 2016

  • Members have to be automatically enrolled and have to opt themselves out if so required.
It is clear that serious consideration needs to be made as to how this can be ‘absorbed’ into your business as easily and painlessly as possible. The earlier this planning is started the easier this is going to be.
Who will be affected? The changes do not affect ALL employees. The focus of the new regime is looking primarily to those between the ages of 22 and State Pension Age, with earnings of more than £5,034 and no more than £33,540 per annum. These people will be automatically enrolled into the scheme. Those who are aged between 16 and 22 or are older – from State Pension Age to 75, and have earnings as outlined above, can join the scheme but are not automatically enrolled. Finally, those that are 16 – 75 and do not have earnings within the previously mentioned salary bracket, can be asked to be included but you, as the employer, do not have to contribute. Employees are not forced to join, and can make the decision that they do not want to be a member and do not wish to contribute to the pension. If this is the case, it relinquishes your requirement to contribute. All your employees could choose not to join, that releases you from contributing anything. You would, however, have to re-offer the pension every 3 years until they accept.
Key Facts The new regulations are designed to get people investing for their own retirement. Automatic enrollment is seen to make it easier for individuals to join. Minimum contribution is 8% of the individuals qualifying income. This is broken down with 3% from yourselves as the employer and the remaining 5% made up of tax relief and employees contributions. Contributions can be ‘phased in’ rather than you having to contribute 3% immediately. This can be actioned over a three year period, 1% in the first year, 2% in the next year etc. The Government backed National Employment Savings Trust (NEST) scheme is a low cost option, however alternative ‘qualifying’ pension plans may be available and may offer greater options, flexibility and investment potential.
What is the impact to employers? If all your employees decide they do not want to invest in the new plans then all responsibility you have under the new regime is waived. You just have to offer inclusion to employees every three years. It may be an idea to canvas employee opinions now. Gemini can assist here with documents, details on the new regime and, if you feel it would help understanding, present a short presentation to your employees. Both the NEST scheme and a ‘qualifying’ pension route will allow the flexibility to transfer and take benefits from employer to employer. Gemini is able to assist with the paperwork involved for both leavers and joiners alike. All you as the employer need to do is contact us when the is to be a change of employee and we will sort everything out.
Employer responsibilities The government is placing a significant burden on the employer with these proposals. The soft option of a Stakeholder scheme is being replaced with legislation that will require employers to both administer and contribute. From an administration point of view, Employers must:
  • Establish a compliant pension scheme
  • Auto-enroll / Re-enroll all qualifying staff
  • Monitor all qualifying earnings
  • Deduct and forward contributions
  • Register / re-register schemes
  • Provide information to eligible and non-eligible jobholders
  • Provide information to scheme provider
  • Process opt-outs / make refunds
  • Keep records
However, Employers MUST NOT:
  • Offer advice
  • Discourage membership
  • Provide a jobholder an opt-out form
  • Encourage opt-outs
  • Use ‘prohibitive recruitment conduct’ (such as employing someone on the basis they agree not to join the pension scheme)

Introduction timetable The requirement to be NEST compliant starts from October 2012 and will vary dependent on the size of the business and the PAYE reference number. The NEST pensions regulator will write to all employers around 12 months before their staging date so that they will know when to automatically enroll their eligible jobholders. Companies with between 90 – 150 employees need to be compliant by 1st June 2014 Companies with between 50 – 90 employees need to be compliant by 1st July 2014 Companies with under 50 employees need to be compliant FROM* 1st August 2014 * Dependent on the last 2 characters of their PAYE code. Compliance requirement is spread between 1st August and 1st September 2016
Employers plan of action It is important to plan for the implementation of this legislation and listed below are some of the key points to both consider and plan: Review
  • What type of workforce do you employ / would you like to employ?
  • What are your recruitment and retention issues?
  • What are the range of benefits you offer / would like to offer and where do pensions feature?
  • Is your existing scheme qualifying and does it offer the flexibility required of a modern scheme?
Costs
  • Understand the implications of auto enrollment and its administration
  • Plan your budgets accordingly, bearing in mind legislative timescale
  • Will salary sacrifice be necessary to limit costs?
  • Review administration systems
  • Set a realistic timescale; must you wait until required to implement or can you introduce early?
  • Clearly establish and differentiate the setting up, administration and ongoing advisory costs
Scheme
  • Personal pension, CIMP, Stakeholder or NEST?
  • What range of investment funds are required?
  • Do you have a mix of low and high earners and do you need a two tier approach?
  • Do you need SIPP capability?
  • Is now the time to wind up that expensive and burdensome company scheme?
Administration
  • Will you handle in-house or contract out?
  • Do you have staff that understand pensions and can deal efficiently?
  • What monitoring systems need to be established?
  • What regular communications are desirable and how do you avoid crossing the ‘advice line’?
  • Penalties are high for non-compliance
Advice
  • What access to advice will you provide to staff?
  • You must promote the scheme but not advise – a very fine line
  • Good communication is key to staff appreciation
  • Pensions are regularly voted the most appreciated employee benefit but it has to be done well
  • Will you provide a broader access to advice as an additional employee benefit?
This article has been provided Gemini Wealth Management who will be issuing updates as and when they appear, in the meantime if you would like to discuss your plans, discuss the suitability of any existing pension plans, or even start a scheme in preparation for this legislation, please contact us and we will put you in touch. The information contained in this article confirms Gemini’s understanding at the time of publishing and is still proposed and so subject to change.

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