A new pension scheme that’s coming to your employment.
Under the Pensions Act 2008 employers will be required to automatically enroll most workers 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 your 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.
You will be eligible to be automatically enrolled into their employer's scheme if they are:
- Aged at least 22 but is not yet state pension age.
- Work or ordinarily work in Great Britain or Northern Ireland.
- Earn more than £5,035 a year.
Nest Questions and Answers
How much will this cost?
- You will pay 4% of your earnings.
- Your employer will pay 3% of your earnings.
- The Government will allow an additional 1% that you would have received in tax relief.
This gives a minimum total of 8% of your 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.
Will I have to contribute to this?
NO. As an employee you have the option to opt out but your decision should be carefully considered and advice sought if necessary.
Who has paid the costs setting up Nest?
Eventually you 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 I 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 Sarah 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 I'm unhappy can I 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 I 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 member’s 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 I 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.
- You will be able to opt out of the workplace pension scheme their employer has provided if they choose. What should I do?
You should be talking to your employer about this. We are happy to help them set up a scheme with more choice and advice. If you want any help then of course we are here to help, call Alan on 01603 309020 or email him here
Updated 23rd June 2011
