NEST and Company Pension Schemes
Company Pension Schemes and National Employment Savings Trust (NEST)
The UK government has agreed that proposals for all UK businesses, regardless of size, to provide an adequate employer contributed company pension scheme for their eligible employees that was initiated by the previous government will from October 2012 become law. To be eligible, staff will need to be 22 years old (or above) and will have to earn at least £7,475 a year (The personal allowance for income tax.), meaning that the scheme will likely cover part-time staff as well as full-time.
Employers and employees will have to make a minimum level of contributions, eventually amounting to 8% of income a year from October 2017.
If such a company pension scheme is not provided, then staff will be automatically enrolled into the new National Employment Savings Trust (NEST). NEST is the new low cost pension scheme any employer can use to meet the new legal duties and will be introduced through voluntary employers from spring 2011.
NEST is being designed specifically to meet the needs of low-to-moderate earners and their employers. It will operate as a trust-based occupational pension scheme run by Nest Corporation.
Employers will be given three months' grace to enrol their staff in either their own scheme - with compulsory minimum employer contributions - or enrol them in NEST instead. If a member of staff chooses to sign up before the three-month period elapses, companies will be forced to make contributions then as well.
The aim is to make sure people who often change jobs can build up a pension pot for their retirement. Contributions from staff and employers using NEST will also be phased in under the same direction.
When will this take effect?
The staging dates for the switchover is dependent on how many staff you employ and their PAYE code. For example, for those with 50-89 employees the staging date is 1st July 2014. For those with a higher number the staging dates run from 1st October 2012 - 1st June 2014.
For those with less than 50 employees, the previous starting date of August 2014 has been deferred to the start of the next Parliament. See our Autumn Statement 2011 for small businesses article for more information. You can also visit the Depatment of Work and Pensions website.
So how will the contributions work?
Until October 2016, the minimum overall level of contributions will be just 2%, with 1% coming from the employer, and 1% from the employee.
From October 2016 to September 2017, total contributions will be 5%, with 2% coming from the employer, and 3% from the employee.
And from October 2017, the total minimum contribution level will be 8%, with employers contributing at least 3%.
For further information, or to be put in touch with an Independent Financial Adviser, please call a member of our team on (01474) 853856
