National Employment Savings Trust (NEST)
NEST — a defined contribution workplace pension scheme — was set up to by the UK government to facilitate auto enrolment. As a ‘qualifying’ scheme, NEST can be used by any and all UK employers to make pension contributions.
The maximum that can be contributed to any NEST member’s retirement pot for the 2015/16 tax year is £4,700, although this limit is set to be removed in April 2017.
In the early years of the scheme — and apart from a few exceptions — it is not possible to make in or out transfers to NEST, although the rules are scheduled to change from April 2017.
Workers earning more each year than the government determined lower level, will be enrolled automatically in NEST if the employer doesn’t have their own pension scheme. Lower earners can join, but must choose to opt in.
Although Auto Enrolment is compulsory, membership of NEST isn’t. NEST is, by design, a very simple scheme offering very few ‘bells and whistles’. Employers with more sophisticated requirements are free to consider establishing other types of workplace/occupational pension schemes.
Key considerations for employers:
1. Which type of scheme are you offering your staff?
Look at the advantages and disadvantages of other employer pension schemes when compared with the NEST scheme. Once you have analysed this, you can then decide which is more suitable for your organisation. A combination of two schemes may be the most appropriate approach initially, with staff eligibility for different schemes contributing to the solution; e.g. senior and employed staff being enrolled into an occupational scheme and contract staff being enrolled in NEST.
2. Work on your budgets
By 2018, all employers will have to contribute 3% of every employees’ ‘qualifying earnings’ to their occupational pension scheme, which will have a considerable impact on the costs of the business. If you offer a higher contribution rate, plan for the cost and long term implications of enrolling all staff on this basis. Look at whether you are making contributions on the full salary amount or band earnings. The key is to budget for these newly introduced measures, so that larger pension contributions do not make a sudden impact on costs. Employers may consider reviewing their total remuneration package in order to absorb these extra costs and looking at methods such as salary sacrifice as a cost-effective way of increasing pension contributions.
3. Review your current systems to make sure they can cope with the additional administration.
Can your payroll and HR systems cope with any extra administration? This is particularly relevant for any organisations that run both an occupational pension scheme and enrol some staff into the NEST system.
4. Effectively communicate these changes to your staff
Consider how you are communicating these changes to your staff. It is important to try and engage employees with their pension and get them to ‘buy-in’ to your company scheme. A pension scheme is viewed by many employees as an essential part of their benefits package, and when offered as part of the overall remuneration, can add tremendous perceived value to an organisation and the way it views its employees.
Organisations that provide pension schemes above the standard laid out by the government are likely to be a more attractive proposition for new and existing employees and demonstrate a commitment to their workforce.
Employers which offer schemes with contribution rates above the statutory minimum may be interested in applying for a pension quality mark to differentiate their scheme from others. (http://www.pensionqualitymark.org.uk)
NEST IS REGULATED BY THE PENSIONS REGULATOR
A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.