The Financial Group
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THE EDUCATION SECTION Every month we look at a particular financial topic in a little more detail. This month it is NEST & Workplace Pension Reform ____________________________ The background The Government has tried to encourage people to save for retirement before with the introduction of stakeholder pension schemes in 2001 but, as this was not a great success, they are now introducing mandatory pension contributions for all employers in the UK. The Government's introduction of NEST (National Employment Savings Trust) is intended to introduce a straightforward opportunity for employees to contribute to a simple low-cost savings vehicle. Their intention is to increase retirement savings throughout the UK and reduce the reliance on the State. NEST is aimed primarily at the lower to middle income earners with the intention that they begin saving towards their own retirement. How will Auto-enrolment work? Employees will automatically be enrolled into either a qualifying workplace pension scheme or NEST. If employees do not want to become members of a pension scheme, they can choose to opt out, but if they choose to stay in then the employer will ultimately have to contribute a percentage of ‘band’ earnings. This is to be introduced on a sliding scale - see below. When fully implemented, employers will have to contribute a minimum of 3% of their workers' band earnings, with employees contributing 4% of their band earnings & the Government topping this up with a further 1% tax- relief. Contribution levels From your plan's start date to September 2017 - total minimum contribution 2%. Of this your employer must pay at least 1% From October 2017 to September 2018 - total minimum contribution 5%. Of this your employer must pay at least 2% From October 2018 onwards - total minimum contribution 8%. Of this your employer must pay at least 3% What are band earnings? Band earnings relate to your income between £5,668 and £40,040 (using the figures for the 2013/14 tax year). The lower and upper levels for this band will change from time to time. Band earnings include overtime and bonuses - not just basic pay. As an example, the contributions for someone earning £20,000 would be based on £14,332 (£20,000 minus £5,668). When will Auto-enrolment start for me? The introduction of auto-enrolment is a reality. Employers' responsibilities started this October and will be phased in over 6 years. The phasing started with the largest employers - those with over 120,000 employees, If you are employed by a smaller company we have included a table below showing the latest date that your employer has to enrol you into either a qualifying workplace pension scheme or NEST. Useful links Staging Date Calculator The NEST website Useful provider site Finally, as always, do not hesitate to contact us if you would like further details or information.