NEST (National Employment Savings Trust)Countdown to Launch (October 2012)This article relates to the forthcoming introduction of the National Employment Savings Trust (NEST)which comes into force in October 2012. It highlights a number of the key issues, which will affect allemployers over the next six years, whilst NEST is integrated into the UK pension system.Employers will be receiving written guidance from the regulators as to their responsibilities and, ofcourse, how the new system will operate. This guidance, which is available online, covers the extent ofthe employer’s duties across 9 individual guides.Furthermore the Financial Services Authority (FSA), which has overall jurisdiction, has also finalised itsrules covering such topics as automatic enrolment and employers offering alternative schemes, such asGPP’s.Three main groups of workers are affected by In a Defined Contribution (Money Purchase) arrangement,NEST be they full-time employees or contract the minimum contribution is 8% of qualifying earnings, with at least 3% paid by the employer.workers. At the present time it is based on 2010/11 tax year (qualifyingEligible Job Holders: Must be automatically enrolled earnings are between £5,715 and £38,185). This includes allbetween the age of 22 and State Pension age. They will sources such as overtime, bonuses and commissions.earn over a threshold, which at this stage is likely to be theincome tax personal allowance - £7,475 in the tax year For those companies who operate pension schemes on2011/12. However, the Government has indicated that it basic salary only, they must meet one of the 3 basicwishes to increase this to £10,000 per annum. This affects requirements.all workers working in the UK regardless of their nationality,the location of the employer company or the length of their 9% of pensionable earnings/at least 4% payable bystay in the UK. the employer contributionNon-Eligible Job Holders: Have the right to opt into the 8% of pensionable earnings/at least 3% payable byPension Scheme with the same basic rules as eligible jobholders. They are under age 22 or over State Pension age, the employer (pensionable earnings at least 85% ofbut under 75 years. Similarly they may be earning under the total pay for all members).current threshold. 7% of pensionable earnings/3% employer (all payEntitled Workers: This final group are very low earners (less must be pensionable)than the NIC primary threshold) who are also not job holders.Although they have the right to ask the employer to make Although this does complicate matters this will permit morepension arrangements for them, the employer will not have employer pension schemes to qualify under NESTto contribute. regulations.Self-employed sole employee directors and non-executivedirectors are beyond the scope of automatic enrolment.Employers can defer automatic enrolment for up to threemonths of the employee starting service.
‘Chartwell’s review, implementation andmanagement service is of great help to employerstrying to navigate through this complexlegislation’.Although the choice is unlikely to be quite as wide ranging Last but no means least, the pensions regulator has nowas those offered by Group Personal Pension Schemes, issued a document (Guide No.2) which details thethere has been a recent introduction of so called ‘Lifestyling responsibility of the employer, in respect of auto enrolment,Funds’, which permit a gradual reduction in high risk funds implementation and management on behalf of theas the pension member moves towards retirement age in membership.order to reduce volatility and potential capital erosion offunds as they reach retirement. This details several key areas below, which I will not cover in this article, but would be happy to discuss:The default NEST options are referred to as ‘Target DateFunds’, where risk is governed by the individual’s proximity to Initial assessment of eligible groupsretirement. This is in 3 phases as follows: Selecting a NEST compatible scheme and contributionFoundation Phase: For 5 years, on members joining from levelage 22, they adopt a generally low risk position, so as not todiscourage the member from continuing with membership of Announcement and roll out to membersthe NEST pension Establishing and management of a suitableGrowth Phase: Aiming to offer returns of 3% plus inflation for payroll/collection systemmost of the term of membership Dealing with new members and opt out instructionsConsolidation Phase: Approximately 10 years fromretirement, with a gradual move to lower risk funds, to reduce Reviewing scheme suitability on a regular basisthe possibility of capital erosion It is quite clear that this simple initial concept may be incredibly burdensome to many employers, particularly thoseBoth Ethical and Sharia, as well as lower growth & higher who do not operate pension schemes at the present time.risk funds, will also be available. It is likely that these optionswill satisfy the majority of NEST members. Unlike Stakeholder in 2001, this is a compulsory pension scheme and both the Government and Pension Regulator made clear that they will not tolerate any employer non- compliance. If you have any questions about anything Important note you have read, please contact The information in this bulletin is based on our understanding of tax law and practice at the date of publication, which may be affected by future changes and individual circumstances. It is issued as general information Jon Fisher/Richard Clarke and is not intended to be advice to any specific person named or Chartwell Financial Services Limited otherwise. Lindley Court Scott Drive If the information refers to a specific product, it may be based on the contents issued by the provider. Altrincham WA15 8AB Before taking or refraining from any action regarding the contents of this publication you are recommended to seek professional advice. The Financial services Authority (FSA) does not regulate tax advice therefore T 0161 929 3500 tax advice is outside of the protection rules of the Financial Services and E firstname.lastname@example.org Markets Act & the Financial Services Compensation W www.chartwellfs.com Chartwell Financial Services Limited is authorised and regulated by the Financial Services Authority. Registration number 189602. Registered Office: Lindley Court, Scott Drive, Altrincham, Cheshire WA15 8AB