The Changing Pension rules
New rules introduced in 2013 mean each employer must provide and contribute to a pension for any and all employees. The government’s scheme is aimed at workers and employers who are mainly new to pension saving.
Auto enrolment and the Employer Duties
The National Employment Savings Trust, known as NEST, is a default scheme which is used in the absence of an employer setting up a work place pension for employees. Legislation has been put in place to confer specific duties on employers to ensure that saving for retirement is a priority.
If an employer is considering using the government NEST scheme there are many things for them to consider:
The NEST Corporation is a non-departmental public body (NDPB) that has a public service obligation to run and is accountable to the Department of Work and Pensions.
Whilst it is a simple pension scheme, the simplicity brings with it a number of restraints and restrictions which need to be considered:
Restrictions of Nest
• Within the rules, it is not possible to transfer in or out of the scheme which means that employees who already have a personal pension plan will not be able to bring their funds together in NEST, or when they leave they will not be able to take their NEST funds with them should the new employer have a group personal pension.
• There is an upper contribution limit which is currently £4400 for the tax year 2012/2013 which would obviously limit the amount a high earner could contribute.
• When workers take their benefits, the choice of how they are taken is restricted to annuity, or open market option. With annuity rates at an all-time low and likely to remain so, this restriction results in less choice.
• Whereas a personal pension provider will cater for individual attitudes to risk when investing the underlying funds, NEST funds are determined by the time limit that the member has to retirement and a number of default funds are used.
• Unlike most schemes the trustees of NEST have no discretion over the payment of death benefits which could result in member’s funds being aggregated with their estate for Inheritance Tax purposes.
Implications for Employers
• Employers who already have a pension scheme need to ensure that the existing scheme meets the necessary requirements. Contribution levels and age groups all need to be taken into consideration.
• It may be that there are different categories within the workforce that need catering for, particularly where numbers of workers are contracted on a temporary basis whilst others are more permanent – therefore there will be multiple schemes in place. This will add further layers of administrative complexity in record keeping and reporting.
• Depending on how varied the workforce is, the move to include all workers may provide an administrative headache. NEST requires annual reporting, joiners and leavers need to be dealt with due care and attention.
• The NEST Corporation do not provide advice, this will be something that employers will need to be able to offer.
Advice from Anderson LLoyd LLP
With a myriad of different solutions, Anderson Lloyd’s financial advisers are able to help in the decision making process and can give specialist pension advice to accountants and employers alike. If you are having difficulty in deciding which way to go with work place pensions contact our NEST specialists who are on hand to help.
It is essential that any investment, including pensions, are reviewed at regular intervals – markets change as do the views and needs of the policy holder. At Anderson Lloyd we offer a free pension review for director, group or personal pensions to ensure they are meeting their target and are best suited for the current financial climate.
We hold regular seminars for local business, accountants and solicitors providing information and guidance on these changes and how to get your business ready. If you would like to attend a seminar or would like a free consultation to discuss these changes then please call us on 01872 261800.