A group of MP’s has called for a relaxation in the rules of NEST (National Employment Savings Trust) to make the scheme more attractive to employers and employees.
NEST is a key component of the government’s Auto Enrolment program, which is aimed at increasing the pension provision of millions of workers in the UK; however the scheme has come in for criticism and it now MPs are calling for changes to be made.
Key NEST changes proposed
The Work and Pensions Committee has called for two key changes to be made to NEST.
Firstly the committee has suggested that there should be no limited on the overall level of contributions to the scheme; currently it is proposed that payments, including employee and employer contributions, as well as tax relief, are capped at £4,400 per year.
Secondly the committee would like to see NEST accept transfers in of other pensions which employees may have.
Anne Begg, Chair of the committee believes that raising the maximum contribution levels would encourage employers to select NEST as their scheme of choice, she added: “Making it easier for employees to bring together the other small pension pots they are likely to have… will help reduce the multiple administrative charges that many people pay and help them to understand the total retirement savings they will have built up.”
How will NEST work?
Under the Auto Enrolment plans any employees who are not already members of a work place pension and earn above the Personal Allowance (£7,475 in the 2011/12 tax year), will be automatically enrolled into the NEST pension scheme.
Exactly when this is done will depend on the size of the employer. For the largest firms the process will start in October 2012, smaller firms, with less than 50 employees, will have to start automatically enrolling employees between June 2015 and April 2017.
Employees will have the option to opt out, but for those who don’t, contributions will automatically be deducted from their wages each month, in addition their employer will have to make payments and tax relief will also be added to the pension.
Contributions will be a percentage of earnings set between upper and lower limits, which in the new tax year will be £5,564 and £39,853.
Current plans mean that the maximum annual contribution to NEST will be £4,400, it is this level that the MPs are calling to be increased fearing that it may put off employers who have more highly paid members of staff in selecting NEST as their pension scheme.
The concern is that if the NEST pension scheme was selected for more highly paid employees then an additional scheme would have to be set up to take contributions above the £4,400 limit. Pension experts believe it unlikely that employers will want to go to the expense of setting up two schemes so would therefore simply avoid NEST and seek an alternative scheme for all contributions.
At present NEST does not allow transfers in of previous pension arrangements, again pension experts believe this could be detrimental to NEST with firms preferring alternative options which do allow transfers thereby promoting simplicity for members.
Do you have questions about NEST or Auto Enrolment? Perhaps you are an employer concerned about how these changes will affect you or an employee worried about having to make additional contributions.
Our team of Independent Financial Advisers in Nottingham are experienced helping our clients the length and breadth of the UK plan for their retirement. If you are concerned about Nest or Auto Enrolment and would like advice on the options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org