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
employers who do not offer access to a suitable alternative pension
arrangement will be able to use NESTs 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 usually 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
£3600 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.
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.
If you are an eligible employee, i.e. you are between 22 years
of age and State Pension Age and earn more than the specified
minimum level (around £5,000pa) you must be automatically
enrolled in the National Employment Savings Trust (NEST),
unless:
- you are a member of an employer's final salary pension scheme
that meets certain minimum standards, or
- you are a member of your employer's money purchase pension
scheme that is receiving a minimum level of employer contributions,
or
- you are a member of a personal pension plan or stakeholder
pension scheme that is receiving a minimum level of employer
contributions.
If you are not an existing member of one the schemes mentioned
above, you 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.
Your employer's final salary scheme provides you with a valuable
retirement benefit. As you will be aware, the income available at
retirement is based on your pensionable earnings and length of
service on leaving.
Retirement benefits available from National Employment Savings
Trust (NEST)are unlikely to be as valuable as those from your final
salary scheme. This is because they are based on the fund available
through payment and investment of contributions. This comes with a
degree of volatility in the benefits you will get that a final
salary scheme does not have. Also, the limit on contributions to
the NEST (currently set at £3600pa) means you are unlikely to
be able to build up a fund large enough to complete with final
salary benefits accrued over an equivalent period of time.
So, whilst your employer continues to operate the final salary
scheme, it may not be in your best interests to cease
contributing.
Also, once you choose to leave, the rules of your scheme may
prevent you from rejoining that scheme at a later date. If you did
leave now, you cannot be entered into the NEST until 2012. Careful
consideration should therefore be given before choosing to leave
because you may be sacrificing any future pension rights through
your employment.
Your employer's money purchase scheme operates in a similar way
to National Employment Savings Trust (NEST) - retirement benefits
are based on the fund available from the investment of the employer
and employee contributions.
Your employer may decide to keep your money purchase scheme
going after 2012 or close it in favour of the NEST. Either way,
continuing to save for retirement before 2012 is still important.
Ultimately, the more you save, the more you can expect to receive
at retirement.
Whatever happens, withdrawing from the scheme now will reduce
your retirement saving. It may also deny you valuable contributions
from your employer (assuming they contribute) - effectively giving
up additional pay.
Your employer's stakeholder scheme operates in a similar way
to the National Employment Savings Trust (NEST) - retirement
benefits are based on the fund available from the investment of the
employer and employee contributions.
Your employer may decide to keep your stakeholder scheme going
after 2012 or close it in favour of the NEST. Either way,
continuing to save for retirement before 2012 is still important.
Ultimately, the more you save, the more you can expect to receive
at retirement.
Whatever happens, withdrawing from the scheme now will reduce
your retirement saving. It may also deny you valuable contributions
from your employer (assuming they contribute) - effectively giving
up additional pay.
Your employer's GPP operates in a similar way to
the National Employment Savings Trust (NEST) - retirement
benefits are based on the fund available from the investment of the
employer and employee contributions.
Your employer may decide to keep your GPP going after 2012 or
close it in favour of the NEST. Either way, continuing to save for
retirement before 2012 is still important. Ultimately, the more you
save, the more you can expect to receive at retirement.
Whatever happens, withdrawing from the scheme now will reduce
your retirement saving. It may also deny you valuable contributions
from your employer (assuming they contribute) - effectively giving
up additional pay.
Saving for retirement is very important, whether in a pension or
another type of investment. The more you save and the longer you
save, generally the more you will have to live on in retirement.
The longer you leave it to start saving for your retirement, the
more it will eventually cost you if you want to retire with a
decent pension. Alternatively, putting off starting to save may
mean that you will end up having to put off when you will be able
to afford to retire.
There are a couple of options for saving in a pension plan. They
are personal pension plans and stakeholder pension schemes. They
work in the same way - your contributions are invested and the fund
available at retirement is used to provide you with an income.
Of the two, stakeholder pension schemes provide increased
flexibility. You can start, stop, increase and decrease your
contributions without penalty. Personal pension plans do not always
provide this flexibility. There is also a cap on your annual charge
administration charge - 1.5% per annum of the value of your fund
for each of the first ten years and then 1% per annum
thereafter.
If you do decide to start contributing to a plan now, you can
continue contributing after 2012, even if your employer enrols you
into NEST. You could therefore be contributing to two (or more)
plans at the same time.
You should be aware that if you decide you cannot afford to pay
into both NEST and your own plan, it would make sense to stop
paying to your own. Being in NEST will involve a payment from your
employer and NEST are likely to have lower charges, making it
better value for money.
However, this factor may influence your choice as to what kind
of plan you should use for the next few years. If you stop
contributing to a stakeholder plan, the rules will only allow the
normal annual charges to be deducted. No such rules apply to
personal pension plans and you need to check if any additional
charges will be made if you stop contributing. There are personal
pension plans where the charges which are levied if you stop
contributing can result in a large part of your savings
disappearing. You need to ask what would happen if you stop
contributions.
Firstly, you need to check that you can join your employer's
final salary scheme. Some schemes have rules preventing employees
from joining when they have previously refused an offer to join or
have opted-out.
Retirement benefits available from the National Employment
Savings Trust (NEST) are unlikely to be as valuable as those from
your final salary scheme. This is because they are based on the
fund available through payment and investment of contributions.
This comes with a degree of volatility that a final salary scheme
does not have. Also, the limit on contributions to the NEST
(currently set at £3600pa) means you are unlikely to be able
to build up a fund large enough to complete with final salary
benefits accrued over an equivalent period of time.
So, whilst your employer continues to operate the final salary
scheme, it may not be in your best interests to continue to be
opted out.
Come 2012, your employer, faced with the prospect of
auto-enrolling a large number of employees into the more expensive
final salary scheme, may decide to close the scheme to all new
entrants and automatically enrol you in a cheaper alternative. So
it may be sensible to join now if the facility still exists as
there is no guarantee that the right to join will continue to exist
in the future when you might want to avail of it.
Firstly, you need to check that you can join your employer's
money purchase scheme. Some schemes have rules preventing employees
from joining when they have previously refused an offer to join or
have opted-out.
Your employer may decide to keep your money purchase scheme
going after 2012 or close it in favour of the National Employment
Savings Trust (NEST). Either way, saving for retirement before 2012
is still important. Ultimately, the more you save, the more you can
expect to receive at retirement.
Whatever happens, not joining the scheme now will reduce your
retirement saving. It may also deny you valuable contributions from
your employer (assuming they contribute) - effectively giving up
additional pay. You may also find that the ability to join may not
be available at a later date if you fail to take advantage of that
facility now.
Firstly, you need to check that you can join your employer's
stakeholder scheme. Some employers will not let employees to join
when they have previously refused an offer to join or have
opted-out.
Your employer may decide to keep your stakeholder scheme going
after 2012 or close it in favour of the National Employment Savings
Trust (NEST). Either way, saving for retirement before 2012 is
still important. Ultimately, the more you save, the more you can
expect to receive at retirement.
Whatever happens, not joining the scheme now will reduce your
retirement saving. It may also deny you valuable contributions from
your employer (assuming they contribute) - effectively giving up
additional pay. You may also find that the ability to join may not
be available at a later date if you fail to take advantage of that
facility now.
Firstly, you need to check that you can join your employer's
GPP. Some employers will not let employees to join when they have
previously refused an offer to join or have opted-out.
Your employer may decide to keep your GPP going after 2012 or
close it in favour of the National Employment Savings Trust (NEST).
Either way, saving for retirement before 2012 is still important.
Ultimately, the more you save, the more you can expect to receive
at retirement.
Whatever happens, not joining the scheme now will reduce your
retirement saving. It may also deny you valuable contributions from
your employer (assuming they contribute) - effectively giving up
additional pay. You may also find that the ability to join may not
be available at a later date if you fail to take advantage of that
facility now.
