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National Employment Savings Trust (NEST)

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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