Personal Accounts (NEST) - Update February 2010

Personal Accounts (NEST) – Bulletin 3 – February 2010

 

 

This is an update to our February and July 2009 Bulletins and is intended to provide the latest details on the subject of Pension Reform.  Please do not hesitate to contact us if you require copies of our previous Bulletins.

 

PADA launches new brand for the Personal Accounts Scheme

 

The Personal Accounts Delivery Authority (PADA) has announced that National Employment Savings Trust (NEST) will be the permanent name of the new national workplace pension scheme formerly known as the Personal Accounts Scheme.

 

Auto Enrolment

 

All “eligible jobholders” will have to be auto-enrolled into either NEST or a private pension scheme of the employer’s choice. 

 

An eligible jobholder is any employee (permanent or temporary and contract workers) aged 22 or over who has “qualifying earnings” in the “relevant pay period”. 

 

Auto Enrolment applies to all eligible jobholders regardless of whether they are permanent employees, temporary employees or contract workers.  However, it has been suggested that employers will be able to postpone Auto Enrolment for temporary employees.

 

Qualifying earnings are earnings in a pay reference period of 12 months between designated lower and upper bands.  These are respectively £5,035 and £33,540[1] in 2006/07 earnings terms.  The Secretary of State for work and pensions must review annually whether the upper and lower earnings levels have maintained their value and will decide how these earnings levels shall be increased.  It should be noted that although the numbers quoted above correspond to the primary threshold and upper earnings limit for 2006/07, the thresholds will not match in future.

 

Auto Enrolment Rules

 

Employers have a one month period to establish membership of either NEST or their own pension scheme.  The Employer has to give enrolment information to the eligible jobholder and also pass on their details to the scheme / provider.  The Employer has to deduct contributions from pay immediately and has to pass them over to the scheme by the 19^th day of the second month after the month that the Auto Enrolment date falls in.

 

Employees that are auto enrolled will then have a one month period within which to opt out.  If they do, any contributions paid have to be refunded.

 

 

 

Auto Enrolment can be postponed for 3 months if the employer pays a 6% contribution and the employee pays 5%.

 

Contributions

 

The total minimum contribution for eligible jobholders must be 8% (3% employer, 4% employee and 1% tax relief) of qualifying earnings and this includes bonus, commission and overtime. 

 

October 2012 launch date

 

Employer’s responsibilities are to be staged over a 4 year period – October 2012 to October 2016 starting with the bigger employers (see the following table[2]). 

 

Contributions are to be phased in and will start at 1% employer and 1% employee and increase to 5% (2% employer and 3% employee including tax relief) from October 2016.  With effect from October 2017, the full 8% of qualifying earnings will be payable.  This is the total minimum contribution and includes a 3% employer contribution.

 

Employer Size (Employees)	Staging Date
10,000 or more	Between 1 October 2012 and 1 March 2013 (determined by number of workers)
500 to 9,999	Between 1 April 2013 and 1 November 2013 (determined by number of workers)
50 – 500	Between 1 January 2014 and 1 July 2014 (determined by number of workers)
Less than 50	Between 1 August 2014 and 1 February 2016 (determined by last 2 characters of PAYE reference number)
New companies established after April 2012	Between 1 March 2016 and 1 September 2016 (determined by date of establishment)

 

Registration & Penalties

 

The Pensions Regulator will oversee the implementation of the new system and will regulate and monitor employers in order to ensure compliance.  The Pensions Regulator will write to employers within one year of their “staging in” date and then again 3 months before in order to remind.  Employers will need to register with The Pensions Regulator within 2 months of their staging in date and then re-register every 3 years.  Employers will also be required to provide information to The Pensions Regulator on a regular basis for example, details of how many employees they have auto enrolled.

 

 

 

 

Penalties will be incurred by employers if they do not comply with the requirements of the new regime and the level of penalty will vary depending upon the “offence”.  For example, a fixed penalty of £400 would apply if The Pensions Regulator issues a compliance notice or there may be an escalating penalty charged depending on the size of the scheme.

 

NEST

 

NEST will be a Money Purchase Occupational Pension scheme and PADA is currently in the process of designing and implementing the scheme. 

 

As we have previously advised, there is no provision for personal advice within NEST and we fully believe that pension provision via the private sector will be of better quality and provide more options to scheme members than they will have available via NEST. 

 

The following table highlights the main differences between the two options.

 

	NEST	Private Pension Provision
Employer Support	No	Yes
Personal Advice	No	Yes
Investment Fund Choice & Advice	Very limited fund choice but no advice	Yes
Transfers in / out	No	Yes
Tailored Communications	No	Yes
Employee Helplines	No	Yes
Retirement Advice	No	Yes

 

The political context

 

Employers generally believe that if there is a change of Government later this year, the plans for NEST and Auto Enrolment may disappear. 

 

However, the Conservatives are in agreement with the principle of Auto Enrolment and the industry view is that Auto Enrolment will happen regardless of a change in Government.  The Conservatives have promised a thorough review of the Personal Accounts scheme and are concerned by the lengthy implementation period for Auto Enrolment.

 

Summary

 

We now have a lot more detail on the subject of Auto Enrolment etc and we believe that employers will need our help in terms of understanding the new regime and reviewing their current pension scheme enrolment procedures and pension scheme design.  There are many reasons to choose the private sector pension route over NEST and we would actively encourage Employers to start thinking about and preparing for Auto Enrolment as we do believe that this will be implemented.

 

 

We will continue to keep you abreast of further changes and developments and will of course advise and assist you with your plans for the future.  Additionally, we will shortly be contacting you separately regarding the launch of our dedicated Corporate Services Team.  One of the focuses of our Corporate Services Team will be the subject of Auto Enrolment and NEST and a full consultancy and advisory service will be available throughout the whole process. 

 

 

back to news articles