NEST/Pensions Reform

Pensions Reform - The new responsibilities under pensions Reform are built on two principles:

  • The auto-enrolment of working individuals into a pension scheme, and
  • Compulsory pension contributions

Auto-enrolment

Auto-enrolment: and individual is automatically enrolled into a pension scheme and does not need to do anything or make any decisions (e.g. choose a fund or sign an application form). 

  • Any job holder aged at least 22 and under state pension age must be enrolled automatically

into a pension scheme unless they are also a member of a qualifying scheme.

  • Job holders outside this range, i.e. aged at least 16 and under 22, or over state pension but under 75, must be given the chance to join if they want to, as long as they are receiving qualifying earnings. If they choose to opt in then their employer also has to contribute on their behalf up to the minimum level.
  • Workers aged at least 16 and under 75 who earn below the qualifying earnings threshold of £5,035 based on 2006 level) must be given the chance to join a registered pension scheme (not necessarily a qualifying scheme), if they are not already active in one, but their employer will not have to contribute on their behalf.
  • Job holders aged at least 22 and under state pension age who are not active members of a qualifying scheme at the time of their automatic re- enrolment date (generally every three years) must be re-enrolled automatically.
  • You may be able to put off a job holder's automatic enrolment date for a maximum of three months, providing a higher pension contribution of 11% of qualifying earnings is paid. Of this amount the employer has to pay at least 6%, with the balance coming from the jobholder. These contributions cannot be phased in over a period of time like the minimum contributions.

Contributions 

  • The total minimum level of pension contributions is 8% of qualifying earnings
  • Employer must pay at least 3%
  • Job holder must pay the balance ( 4% plus 1% tax relief)

Qualifying Earnings

They are based on band earnings, between £5715 and £38,185 (2010/11) and include:

  • Salary/wages
  • Commission
  • Bonuses
  • Overtime
  • Certain statutory payments - e.g. maternity pay, sick pay

Phasing in of responsibilities

Automatic enrolment responsibilities are to be phased in with larger employers going first over a 4 year period starting in October 2012:

There will be three phases of contributions

 

Employer Contribution

Jobholder Contribution

Total

Staging Date to 30/09/2016

1%

1%

2%

01/10/2016 to 30/09/2017

2%

3%

5%

01/10/2017 onwards

3%

5%

8%

 

Self-Certification

The below model is still a proposal, but the approach has been accepted by the government.

Self-certification allows you to certify with the Pensions Regulator that overall, any qualifying scheme that meets one of the following criteria can self-certify and will meet the minimum contribution test:

  • Minimum 9% contribution of pensionable pay ( including a 4% contribution made by the employer), or
  • Minimum 8% contribution of pensionable pay ( with a 3% contribution made by the employer) as long as pensionable pay makes up at least 85% of the total bill, or
  • Minimum 7% contribution of pensionable pay (with a 3% contribution made by the employer), as long as the total pay bill is pensionable.

The Employer will have to self- certify each year

NEST (National Employment Savings Trust)

  • An alternative occupational scheme that employers can use to enrol their eligible job holders, instead of a private pension scheme.
  • It is a large defined contribution scheme designed for low and medium term employees
  • Run by the private sector at arm's length from the government
  • governed and administered by a trustee corporation ( NEST CORPORATION)
  • quite basic e-based where appropriate, with few choices for individuals who join
  • The investment strategy is cautious - the focus is on members not losing the value of their contributions rather than investment returns. There will be a default fund, with a limited range of 6-8 alternative funds only in total.
  • Each member will have their own personal account within NEST.

NEST Charges    

  • 0.30% amc
  • 1.80% contribution charge (payable until the set up costs of the scheme have been met).

How does it affect you and your business?

To understand how your organisation is affected and your specific obligations please contact us for a no obligation initial meeting.  This article is not to be taken as specific advice and should be used for information purposes only.

 

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