Pension schemes will soon be compulsory for all UK companies, following the upcoming reform of company pensions in the Government’s NEST (National Employment Savings Trust) scheme.
This will have significant cost implications for employers, particularly those with no company pension schemes at present, as they will now have to set up a pensions department to make a pensions provision for staff.
Employers have two options, either to offer their staff a NEST pension, or set up their own occupational pension scheme.
Employers who opt for the NEST scheme will pay 3% of salaries into NEST pensions, while workers provide 4% and government 1%, giving total contributions of 8%.
Major changes for 9 out of 10 employers
Ignoring the issue of company pensions is no longer an option for employers. PADA, the government authority organising NEST, has said that 9 out of 10 employers will have major changes to make in the near future, as NEST will mean a pensions function in every company.
Following the launch of the scheme in 2012, all employees with no other pensions option will be ‘auto-enrolled’ into NEST. Only employees who actively opt back out of NEST, after auto-enrolment, will not participate.
It is estimated that over 80% of employees will have a company pension, once NEST is fully operational. With the average pensions uptake in companies with a current scheme running at just 55%, the huge increase in administration costs is clear.
Act now to take control of your company pension scheme
However, employers who act now can set up an in-house company pension scheme which would exempt them from the government run pension scheme of NEST, and give them significantly more control over their company pension.
NEST – What will it deliver?
There are a number of controversies surrounding the concept of NEST.
First, there will be a 2% levy on worker contributions to NEST to repay the £600m government loan to set up the scheme. (NEST has already spent £360,000 of this to design its egg-shaped logo.)
Second, the current basic state pension of £97.65 per week can be supplemented by a top-up to £132 in the form of pension credits. Pension credits are a means-tested benefit, which can be reduced for those who have additional income or savings of their own. Many workers could stand to lose these pension credits due to their NEST pension, with the result that they could be little better off for having saved in NEST. Some have even claimed that the government is saving on pension credits, by having workers fund their own state pension top-up, in the shape of income from NEST.
Will older employees benefit from NEST?
Employees of 50 or older, with less than 20 years left before their retirement, face an additional challenge. They may have a very inadequate pension return from NEST, as their contributions will not be invested for long enough – but may still see their pension credits affected.
For further information contact Principle First on 0800 678 5929 or request pension advice online
