Are You Ready for NEST?

Are You Ready for NEST? Preparing for new workplace pension scheme reforms 2011

THE REASONS BEHIND THE REFORM Work-based pensions are being reformed to encourage more people to save for their retirement.

As a Nation, the statistics show that many people are failing to save for retirement.

ALL EMPLOYERS WILL BE AFFECTED BY THE REFORMS

We are healthier, living longer and expect more from our retirement.

The Government has determined that more people need to save for their retirement to supplement the Basic State Pension through either their Company pension scheme or a new Government Pension scheme called NEST (National Employment Savings Trust).

What will you need to do?

This means that all employers will have to automatically enrol all eligible job holders into a qualifying pension scheme or NEST and make an employer contribution.

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Provide a qualifying scheme for your workers

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Automatically enrol all eligible jobholders into the scheme

PREPARING FOR NEST

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Pay employer contributions for eligible jobholders to the scheme

For some employers, auto-enrolment is less than a year away, but many employers have not yet considered how they will be affected by the reforms and even fewer have started to put procedures in place to make sure they comply with the rules.

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Tell all eligible jobholders that: – they have been automatically enrolled and – they have the right to opt out if they want

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Register with the pension regulator and give them details of your qualifying scheme and the number of people that you have automatically enrolled.

To ensure a smooth transition and optimum compliance, employers need to engage well in advance of their mandatory start date.

According to research by JLT, very few employers plan to use NEST instead preferring to use an existing scheme or set up a new scheme. However, many are still unsure as to their approach towards auto-enrolling employees and the administration burden this will place on them.

Worryingly, some two thirds of employers have not yet quantified the additional costs of fulfilling their responsibilities and, in terms of direct contribution costs and administrative expenses, these could be substantial.

The main things employers will need to do:

Who has to be enrolled?

Employees, aged between 22 and 65, who work in the UK and have (in 2011/12 terms) earnings of at least £7,475 per annum (i.e. the same as the personal allowance for income tax).

Other employees can ask to be enrolled and all employees have the right to opt-out.

The auto-enrolment process must be repeated every three years for those that opt-out, but employers are to be given flexibility around the date they re-enrol employees by allowing a six month window for this activity.

Employers can auto-enrol into an existing pension scheme, set up a new scheme, use NEST or comply through a combination approach.

When will the changes come into effect?

Each employer will be given a date from which the changes will have to be in place. This is known as your staging date. 

The first staging dates will begin 2012 and will continue through to 2016.

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Your staging date will be broadly based on the number of people you have in your PAYE scheme.

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Employers with the largest number of workers will have the earliest staging dates. The smallest employers will have later staging dates.

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You can, of course, set up pension arrangements for your workers at any time.

You don’t have to wait until automatic enrolment is introduced in 2012.

What will it cost?

Employer and employee contributions are based on ‘qualifying earnings’ between, in 2010/11 terms, £5,715 (the National Insurance primary threshold) and £38,185 (inclusive of bonuses, commission, etc).

These figures will be increased each year in line with earnings. Total contributions start at 2% from 2012 (1% employer and 1% employee, inclusive of basic rate tax relief) and will reach 8% by 2017 (3% employer and 5% employee).

WHAT IF I HAVE AN EXISTING PENSION SCHEME? HAVE AN EXISTING PENSION SCHEME? Even if you already provide a pension scheme for your workers, you will need to check if it is a qualifying scheme.

It will need to meet certain requirements depending on the type of scheme you have. It must also be appropriate for automatic enrolment. We can review your existing scheme and discuss the rules and any possible changes.

Many occupational and group personal pension schemes will qualify. To be a qualifying scheme, it needs to meet certain requirements.

HOW WILL I KNOW IF MY SCHEME IS A QUALIFYING SCHEME? To be AN a qualifying minimum contributions must be made or it must provide a minimum rate HAVE EXISTINGscheme, PENSION SCHEME? at which benefits will build up. Even if it doesn’t qualify at the moment, you may be able to change the scheme rules or amend the terms of the policy so that you will be able to use it by the time your staging date comes around.

WHAT IF I DO NOT HAVE AN EXISTING SCHEME? HAVE AN EXISTING PENSION SCHEME? If you do not have an existing scheme, we can set up a qualifying scheme that meets all requirements If you would like more information on any aspect of NEST and auto-enrolment, or if you would like to discuss a review of your present pension arrangements, then please do not hesitate to us:

BY EMAIL: enquiries@wrfinancial.co.uk

BY PHONE: 01642 661600 (Teesside Office) 01670 789070 (Northumberland Office)

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