If you already have a scheme in place….
Do you get a great service from your provider and adviser?
Do you and your employees have access to good online information, including payroll systems, current fund values and projections, a wide investment choice, including governed fund portfolios rather than just simple funds?
Do you and your employees understand the importance of analysing performance as well as illustrations and charges?
What access to advice is available to your employees at enrolment, retirement and in between, you may not appreciate how much they appreciate access to advice but they do.
Do you & your employees understand their investment choices and how this can effect their ultimate income in retirement?
Is their attitude to risk assessed and explained.
Have you and your employees considered salary sacrifice and the potential tax and NIC savings?
Our aim is to act as the pension department to your HR department - to give you and your employees a full support service.
A group pension scheme can have significant advantages for your business. It is a tax-efficient way of increasing staff benefits, raising staff morale and helping you recruit and retain employees.
Extensive tax relief is available:
• Employees’ contributions – income tax relief & potentially national insurance contributions
• Employer’s contributions – corporation tax relief & potentially national insurance contributions
• Scheme investments – income and capital gains tax relief
2012 pension reform NEST (National Employment Savings Trust)
Pension reform is coming. The government is set to introduce compulsory workplace pensions from 2012 and vast numbers of employers, from the largest to the smallest, will be affected.
Initially, smaller businesses with fewer staff need not to worry, because the reform be carried out in stages.
Only employers with over 30,000 staff will be forced by law to offer their workers a company pension scheme in 2012.
However, by 2013 any employer with more than 350 staff on its books will be obliged to set up and contribute into workplace plan for its employees.
And between 2014 and 2016, those employers with less than 350 staff will be subject to the same rules.
Employees will be auto-enrolled and can expect their company to put a minimum 3% of any earnings between £5,035 and £33,540 into each worker’s fund.
To help, the government is introducing NEST – which will provide a state-led alternative for any employer wishing to use it.
However this is just one option and setting up your own scheme could be simpler and better for you and your employees.
What is NEST and the Pension Reform
In December 2006, the Government published a White Paper, outlining its workplace pension reforms, including proposals for NEST (the National Employment Savings Trust) – previously called Personal Accounts. This led to the Workplace Pension Reforms set out in the Pensions Act 2008. These reforms aim to increase individuals’ savings for retirement.
A new, simple. low-cost pension scheme, NEST will be introduced as part of the workplace pension reforms and will have the following key features.
It is to be introduced from 1 October 2012 as part of the workplace pension reforms to give employers a further option to meet their auto-enrolment duties.
It will be a trust-based Defined Contribution (DC) occupational pension scheme and will be regulated in the same way as existing trust-based DC schemes.
The amount of pension payable from NEST, just like any DC scheme, is dependent upon:
- the amount of money paid into the scheme (by the member and the employer);
- how well the investment funds perform; and
- the ‘annuity rate’ at the date of retirement. An annuity rate is the factor used to convert the ‘pot of money’ into a pension
The reforms come come into force from 1 October 2012 and requires employers to automatically enrol their staff into qualifying pension schemes and make minimum contributions.
Contributions however will be limited and initial costs look expensive.
Employers will be able to choose the type of scheme to enrol their staff into, provided it meets certain criteria. In general terms, it will either be a Defined Benefit (DB) scheme, a hybrid scheme or a Defined Contribution (DC) scheme, including NEST (the National Employment Savings Trust).
To comply with the new requirements, minimum standards must be met. For DB schemes, there must be a minimum level of benefit payable. For DC schemes, a minimum contribution level must be met. Hybrid schemes will have to meet the DB and/or DC requirements, depending on the scheme.
Minimum Contributions for DC schemes and NEST
Where a worker is automatically enrolled a defined contribution (DC) scheme or NEST, there will be:
a minimum contribution of 8% of qualifying earnings, of which
the employer must pay a minimum of 3%. If the employer chooses to pay the minimum 3%,
the worker will pay 4%,
with a further 1% paid as tax relief by the government.
(Qualifying earnings in 2006/07 terms are between £5,035 and £33,540).
However, these minimum contribution levels will be phased in between October 2012 and October 2017.
• October 2012 to September 2016 – total minimum of 2% of qualifying earnings with at least 1% from the employer.
• October 2016 to September 2017 – total minimum of 5% of qualifying earnings, with at least 2% from the employer.
• From October 2017, total minimum of 8% of qualifying earnings, with at least 3% from the employer.
Workers will have the option to opt-out of the scheme. The worker will have a set amount of time to take up this option.
New Employer Duties
The new employer duties are planned to come into force from 1 October 2012. Under these duties, employers will have to:
- enrol workers into a qualifying workplace pension arrangement;
- choose the qualifying scheme(s) they adopt to discharge the newly arising duty; and either
- make a minimum 3% contribution towards a defined contribution scheme (based on qualifying pensionable earnings) or NEST (the National Employment Savings Trust); or
- offer membership of a defined benefit scheme or certain hybrid scheme which either has a contracting out statement or meets the test scheme standard.
Employers will also have an ongoing duty to maintain qualifying pension provision for workers who;
- are already members of qualifying schemes; or
- become members of such schemes.
Contributions
The maximum contribution to NEST is £3,600.00 per annum which means that higher paid staff or those wishing to make large pension contributions are not fully catered for. As a result employers will increase the administrative burden as there will be a need to run two schemes if they opt for NEST. This will be uprated by earnings yearly.
Charges
NEST will provide people with access to a simple low-cost pension scheme. The charges are expected to be:
A 2% charge on the value of each contribution to cover NEST’s start-up costs; and An annual management charge of 0.3% of the value of the fund.
Investment Choice
Workers will be automatically enrolled into the default fund but there is likely to be a choice of investment funds, which may include options such as social, environmental and ethical investments.
Those not wishing to make an investment choice, will stay in the default fund.
Anyone who joins NEST will be able to continue to save in the scheme even after they leave the workplace or move to an employer that does not use NEST.
The self-employed and single person directors are not eligible for auto-enrolment but will be able to join NEST.
Opting Out
Employers will need to automatically enrol their eligible workers into a qualifying pension scheme and make contributions to it. Workers will be able to opt-out of their employer’s scheme if they choose not to participate.
Workers who give notice during the formal opt-out period will be put back in the position they would have been in if they had not become members in the first place, which may include a refund of any contributions taken following automatic enrolment.
Transfers
Transfers in and out of NEST are not allowed (except in specific limited circumstances). This will be reviewed in 2017.
Contribution Limits
There will be an annual contribution limit of £3,600 (in 2005 earnings’ terms) into NEST.
Q & A’s
What is auto-enrolment?
This is a process whereby employees are automatically entered into a pension scheme without any form of application on their part. Many employees fail to join valuable pension schemes where they first have to initiate an application process. Auto-enrolment is meant to overcome this obstacle.
When the pension reforms are introduced in 2012, all eligible employees will have to be auto-enrolled into a qualifying pension scheme. Employers will be able to choose which qualifying scheme to use, including the new National Employment Savings Trust (NEST). All qualifying schemes must meet minimum standards, either, of the benefits it provides or the amount of contributions paid to it, and must also provide auto-enrolment for all eligible employees who have not already joined the arrangement and for all new employees when they become eligible.
What is the National Employment Savings Trust (NEST)?
In a move to encourage saving for retirement, the Government is introducing a new low-cost saving scheme – National Employment Savings Trust (NEST). It is to be introduced from 2012 and employees who do not offer access to a suitable alternative pension arrangement will be able to use personal accounts for their employees.
Employees will be automatically enrolled in the scheme but will have the opportunity to say they do not want to join. They will also be able to come out again at a later date if they want to.
Contributions will be paid by employees and employers and invested in a range of funds. At retirement, the accumulated fund will be used to provide an income for the member’s lifetime.
Members of the scheme and their employers will be able to pay additional contributions above the specified levels. However, there will be an overall limit on the total amount that can be invested in the scheme each year. At present this limit has been set at £3,600 pa.
The scheme will be run by a board of trustees. The trustees will run the scheme independent of Government and the scheme will be regulated by The Pensions Regulator in common with all other occupational pension schemes.
Will I have to auto-enrol my employees into the National Employment Savings Trust (NEST) in 2012?
You will have to auto-enrol into the National Employment Savings Trust (NEST) any eligible employee.
An eligible employee is one who is between 22 years of age and State Pension Age and earns more than a certain minimum, around £7,475/yr, (the personal allowance for income tax) unless:
• he/she is a member of your final salary pension scheme that meets certain minimum standards, or
• he/she is a member of your money purchase pension scheme and there is a minimum level of employer contributions, or
• he/she is a member of your personal pension plan or stakeholder pension scheme and there is a minimum level of employer contributions.
If an eligible employee is not an existing member of one the schemes mentioned above, he/she must be either auto-enrolled in the NEST or in your employer’s pension arrangement provided that arrangement meets certain minimum conditions as to the benefits it pays or the level of contributions paid to it.
At present, although employers can auto-enrol employees into an occupational pension scheme, they cannot auto-enrol employees into a Workplace Personal Pension (WPP). However, from 2012, employers can choose to auto-enrol eligible employees into either an occupational pension scheme or a qualifying WPP.
There is no requirement to auto-enrol in any pension arrangement an employee who does not meet the eligibility conditions.
I already have a scheme in place will I still have to put them into the National Employment Savings Trust (NEST)?
No, as long as your current scheme meets certain minimum standards as to the level of benefits it provides you will not have to do anything in respect of those employees who have already joined the scheme. If you introduce auto-enrolment into your scheme for all new employees and those existing employees who are not currently members of the scheme you will be exempt from having to use the National Employment Savings Trust (NEST).
You may have employees that are not eligible to join your current scheme. Any such employees must be enrolled into the NEST if they are between 22 years of age and State Pension Age and earn more than around £5,000 per annum.
From 2012, you will have to enrol eligible employees into the National Employment Savings Trust (NEST) unless you replace it with another exempt arrangement.
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“The value of your investment can fall as well as rise and you may get back less than you pay in.”