NEST Pensions: National Employment Savings Trust

From October 2012 the UK Government will introduce a new pension scheme to the UK as part of a bigger overall pension reform strategy. Previously known as "personal accounts" or "personal account pensions", pensions minister Angela Eagle announced the new brand - The National Employment Savings Trust or NEST on 7 January 2010.

The full proposals include reforming the UK State Pension to make it simpler and more generous as well as formally extending people's working lives.

The Government estimates that about seven million people are currently under saving for retirement and a major part of the reform is the Government's ideas for making it easier for these people to save for retirement. The proposals will have wide ranging effects across every field of UK business as the onus will be put on employers to help encourage more people to save:

• From October 2012 UK employers will be required to automatically enrol employees into a 'qualifying workplace pension scheme'. This auto enrolment could be to your existing company pension scheme if it meets certain criteria. If it does not meet the criteria or if you do not operate a company pension scheme then your employees will be enrolled into NEST, a simple, low-cost pension scheme being introduced by the Government.
• Between October 2012 and 2017, depending on the size of company, all UK employers will be required to contribute a minimum of 3% of each employee's eligible earnings into a pension, assuming the employee does not "opt out". This is intended to incentivise them to start saving towards their retirement. Employees will need to pay a personal contribution of 4% with a further 1% tax relief being added to make the minimum contribution 8%.
  
  This leaves UK employers with a pivotal role and the Government is proposing key measures designed to minimise the burden on them:
  • Compulsory employer and employee contributions will be phased in.
  • Simple, straightforward, qualifying criteria for existing Company Pension Schemes, meaning many existing schemes will meet them, perhaps with minor changes.
  • A 'light-touch' but effective compliance regime for new employer duties such as automatic enrolment.

Summary of NEST

• National Employment Savings Trust is the new national workplace scheme formerly known as Personal Accounts
• Intended as a vehicle for low earners
• Designed to be simple with low charges
• Limited choice of funds
• Default fund
• Annual contribution limit of £3,600 pa (increased NAE from 2005)
• Proposed charges 1.8% initial + 0.3% AMC
• Regulated by tPR

Comparison of NEST to Company Pension Schemes

	NEST	Company schemes (both Trust & Contract based)
Contribution Limits	£3,600 pa (as at 2005)	No limit, although can only accept payments eligible for tax relief
Transfers	Transfers in & out are not allowed, except at retirement. Restriction expected to be revisited in 2017	Usually allowed
Death Benefits	Subject to IHT	Free of IHT
Charges	Proposed 1.8% initial, 0.3% ongoing	Flexible charging structures are available

	NEST	Company schemes (both Trust & Contract based)
Salary Exchange	Unclear if this will be available	Permitted but care must be taken within trust based schemes
Employer & employee support	There will be a single level of service for all employers & employees. Provision of information will generally be through e-channels (e-mail, internet, SMS & telephone IVR)	Wide range of services tailored to needs of employer. Advisers &/or providers normally provide ongoing monitoring of the scheme and services to ensure scheme continues to meet the needs of both the employer & employee, both online and paper-based.
Investment Options	Consultation ongoing, but believed to be considering target date funds instead of traditional life-styling. Default fund likely to be cautious. Likely to be switching restrictions.	Many offerings ranging from tracker funds, life-styling, managed funds, specialist sector funds and self-investment options.
Retirement Options	Default retirement age 65 rising in line with future increases to state pension age. Members can chose other dates between ages 55 & 75. Cannot phase retirement benefits.	Members can choose an age between 55 & 75. Options often permit phasing.
Advice	Available but with additional fee.	Normally provided by the adviser, and can be included in the scheme's charging structure.

	Nest	Private Provision
Suitable for low value schemes?
Simple
Government publicity campaign
Low charges
One scheme for all employees
Maintain existing relationships
Tailored communication material
Adviser Support

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