In December 2006, the Government
published a White Paper, outlining its workplace pension reforms,
including proposals for the National Employment Savings Trust
(NEST) (previously called Personal Accounts). The proposals
are to introduce a straightforward opportunity for workers to
contribute to a high-quality, low-cost savings vehicle. This
should increase retirement savings throughout the UK and reduce the
reliance on the State.
The scheme is expected to be introduced in 2012 and is likely to
have the following key features.
Governance
The NEST will be a trust-based defined contribution
occupational pension scheme. It will be regulated in much the
same way as existing trust-based defined contribution schemes.
Low Charges
Through the NEST the Government aims to provide people with a
simple low-cost way of pension saving. The charge structure and
level of charges that will apply to members in the NEST are yet to
be decided. The Personal Accounts Delivery Authority
(PADA) published a summary of responses to their
consultation on charges structure for the NEST on 15 July 2008, and
will make recommendations on the structure and level of charges as
part of its wider advice to Government on the delivery of the NEST.
The Government fully intend that the scheme will be the type of low
cost scheme envisaged by the Pensions Commission.
Investment Choice
There is likely to be a choice of investment funds, which may
include options such as social, environmental and ethical
investments, as well as branded funds.
For those not wishing to make an investment choice, there will
be a default fund. Members will be automatically enrolled
into the default fund if they do not choose an investment.
Membership
If an employer chooses to use the NEST to fulfil their auto-enrolment duty, it is proposed
that:
- Workers between 22 years of age and State Pension Age will be
automatically enrolled if they earn more than around £5,035
per annum;
- Employers will be required to pay contributions equal to the
value of 3% of the worker's earnings that fall within a band of
earnings of between around £5,035 and £33,500 per annum
(in 2006/07 earnings' terms);
- Workers will be required to contribute a maximum of 4% on
the same band of earnings, while the Government will contribute
around 1 per cent in the form of normal tax relief;
- The band of earnings will be reviewed annually to see if it has
maintained its value in relation to changes in average earnings,
and will be up-rated accordingly;
- Workers under 22 years of age and above State Pension Age will
be able to opt into the scheme, with access to employer
contributions if they earn more than £5,035 per annum;
and
- Workers with earnings below £5,035 a year will be able to
opt into a workplace pension scheme. The employer will not be
required to make a contribution, but may do so if they wish.
Workers that are auto-enrolled into their employers' qualifying
pension schemes will be exempt from being auto-enrolled into
another qualifying scheme (including the NEST).
Anyone who joins the NEST will be able to continue to save in
the NEST even after they leave the workplace or move to an employer
that does not offer the NEST.
The self-employed will not be subject to auto-enrolment but will
be able to opt into the NEST.
Opting Out
Employers will need to automatically
enrol their workers into a qualifying pension scheme (of which the
NEST will be one). 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
There will be a general prohibition on transfers to and from the
NEST. This will be reviewed in 2017.
Contribution Limits
There will be an annual contribution limit of £3,600 (in
2005 earnings' terms). This will be uprated by earnings year on
year.
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EMPLOYERS
