NEST – the new trouble on the horizon
Under the Pensions Act 2008 employers will be required to automatically enroll all eligible jobholders into a workplace pension scheme that meets or exceeds certain legal standards and make a minimum contribution to that scheme.
Other workers are also eligible to be enrolled by their employer if requested (although these workers aren't automatically entitled to employer contributions).
It will be up to you as the employer to choose a suitable pension scheme. This may mean using existing schemes, setting up a new one, using NEST or another qualifying scheme or a combination of them.
Jobholders will be eligible to be automatically enrolled into your scheme if they are:
- Aged at least 22 but are not yet state pension age.
- Work or ordinarily work in Great Britain or Northern Ireland.
- Earn more than £5,035 a year.
These people will be known as eligible jobholders and you will have to make a minimum contribution into that scheme on their behalf. Jobholders who have been automatically enrolled into a pension scheme can choose to opt out.
Nest Questions and Answers
How much will this cost?
- Employees will pay 4% of their earnings.
- You will pay 3% of their earnings.
- The Government will allow an additional 1% that they would have received in tax relief.
This gives a minimum total of 8% of their salary. There is also scope to increase the contributions from employer and employee up to certain limits*.
*The maximum contribution is currently £3600 per year with no transfers in or out allowed.
Do I have to do any of this?
YES. As an employer you will have to if your employee fits certain criteria (unless the employee chooses to opt out).
Who has paid the costs setting up Nest?
Eventually the members will. The scheme has cost an estimated £1 billion pounds to set up (This amount has staggered many professionals in the industry). This money has been lent to the NEST Corporation by the Government and will be repaid by a planned charge on members contributions. There will be a cost of 1.8% on contributions into the plan (therefore £1.80 for every £100 contributed will be charged initially). The timescale for the levy is unknown but is expected to be for the first 20 years dependent on the success of NEST. It could be a lot longer.
There will also be an annual management charge on top of the initial charges. This is expected to be in the region of 0.3%. These costs will pay for the management of the pension scheme. NEST however does not give advice. If advice is required or preferred this will need to be obtained elsewhere.
Do they get a wide choice in funds to choose from?
No. Only around Ten funds are expected however this will include an ethical and religious fund such as a Shariah fund according to NEST.
Historically lower risk funds tend to have a lower potential for growth over certain time frames.
How will the administration work?
NEST has also signed a £600 million IT contract with the Indian based Tata Consultancy Services and confirmed a 10-year agreement with State Street for fund administration.
The intention is that NEST will be wholly web-based although a call centre will be available.
Therefore employee enrolment, record keeping, contribution collection and details of each member's fund will require online operation by the employer.
How many people are expected to join NEST?
Nest is likely to have millions of members all dealt with online.
Presumably Tata have run a scheme similar to this before?
No. They do however they make very nice cars and excellent tea.
If they are unhappy can they move my funds elsewhere?
No, NEST don't allow any transfers out and transfers in are only allowed in exceptional circumstances. Once funds are in the NEST Pension Scheme, they cannot be moved to another scheme (unlike many pension schemes).
Are Nest allowed to give any advice or fund recommendations?
No they cannot give advice.
Can they have face to face advice or obtain advice by phone?
No, Not via NEST but you can follow a conventional approach of obtaining advice and speak to a Financial Adviser.
Who will members speak to for advice if they wish to speak to anyone about the volatility of their funds?
It would be inappropriate for an employer to give advice to an employee in this respect and NEST does not give advice.
Who can I get advice from?
Historically it has always been recommended that Independent Financial Advice is sought when reviewing financial affairs. This allows for the most appropriate funds to be recommended in relation to a members attitude to risk and is normally done on a face to face basis. Current schemes can also be reviewed and other financial affairs discussed as appropriate.
Are Nest contributions limited to certain amounts?
Yes.
Will the funds be passive or managed?
The funds will be what's called passive which means they just follow certain indexes irrespective of direction.
Must my staff have a NEST Pension?
- Employers can choose a NEST pension or they can opt to use another qualifying workplace pension scheme to meet their new duties and employees needs.
- All jobholders will be able to opt out of the workplace pension scheme their employer has provided if they choose. What should I do?
Employers should consider whether it is most appropriate to place members with another qualifying workplace pension under the care of a Financial Adviser (if agreed) or whether to use the new NEST Pension Scheme as it comes available.
Is there an alternative?
Yes – we can help you set up a pension scheme designed specifically for you and your employees. This will give individual support to you and each of your employees and will provide ongoing advice
A scheme with good ethical credentials which will invest in the things that you support and avoid those you don’t.
A scheme that is easy to set up (we do all the work) and that will be easy to administrate.
A scheme that is flexible and allows you a great deal of choice.
Do I have to do anything now?
You have two choices:
- You can start to put in place a pension scheme for your employees that will meet NEST standard. That way you need not bother with all of this again. We will be happy to help you with this,
- Or you can join our Pre-NEST service we can offer a full information service. We will advice you when you need to act and what you need to do. That will cost £10 per month and will mean you do not have to read the reams of paper that will e coming down on you soon about NEST.
And of course we are here to help you through all of this. Contact Alan on 01603309020 or email him here.
