New Pensions Regulations Explained
Automatic enrolment will bring about huge changes to the pensions landscape which will affect every employer in the UK. Starting in 2012, employers will need to enrol most of their workers in a qualifying pension scheme and make minimum contributions.
NEST (the National Employment Savings Trust) is one of the schemes they can choose and has been established by law to be available to any employer who wants to use it.
NEST is working with trade associations, employers and organisations impacted by the reforms, to help them to understand how they will be affected and what they can do to prepare for the changes.
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%.
Employers will need to automatically enrol workers aged at least 22 but under State Pension age who earn more than £7,475*.
The total minimum contribution to each worker’s retirement savings pot will eventually have to equal 8 per cent of their qualifying earnings. Of this 8 per cent the employer will have to contribute a minimum of 3 per cent.
Contribution levels will be phased in - starting at 1 per cent - and increase gradually to the minimum level to help employers and workers to adjust.
The new duties affect the largest to medium-sized employers between October 2012 and July 2014, followed by small and micro employers from August 2014 to February 2016.
The minimum requirements are intended to set a foundation on which to build saving for the future. Both employers and individuals can contribute more if they choose.
NEST has been established to ensure there will be an easy to use, low-cost pension scheme available to all UK employers to help them meet their new duties. Any employer can use NEST, or they can choose another qualifying pension scheme.
Like other trust-based workplace pension schemes, NEST is run on a not-for-profit basis. That means we have no shareholders and the scheme is required by law to be run in the interests of its members.
NEST has been specifically designed to cater for people who are largely new to pension saving, and the organisations that employ them. NEST will have online set-up and administration, and clear communications.
Employers can use NEST in a number of ways. For example, it could be the only pension scheme an employer offers to all its workers where there isn’t an existing scheme. Alternatively, it could be used alongside an existing scheme for a particular category of workers or as an entry-level scheme.
For further information about NEST visit www.nestpensions.org.uk
Find out when the new duties will affect businesses at The Pension Regulator’s website at www.thepensionsregulator.gov.uk/employers