Just to make the whole pension issue even more complicated – there is a massive new piece of legislation coming over the hill. You may or may not have heard of NEST pensions – but if you or your partner work for a company, big or small, this could affect you soon. If you want to know what’s going on, here’s an easy guide to NEST, and what it means to you.
What are NEST pensions?
NEST stands for National Employment Savings Trust, and it is the government’s great white hope in solving the problem that is the lack of pension savings across the UK’s working population.
Under current rules, your employer must provide access to a Stakeholder Pension – but they do not have to put any money into it, nor do you have to join. So if you are working for a company that does not make a contribution into the pension scheme on your behalf, there is no real incentive to become a member.
This is all about to change. From October 2012, not only is it becoming mandatory for companies to provide a pension scheme for their staff, but this time both you and your company have to make a monthly contribution to the scheme.
Don’t panic – so as not to provide a shock to the system, the changes are being brought in gradually. More about that later.
What’s the point of NEST pensions?
The sad truth is that most people in Britain are not saving enough for a comfortable retirement, and far too many of us are not making any pension savings at all. There are many reasons for this, ranging from lack of affordability, to lack of confidence in the whole pension system.
Your retirement could last upwards of 30 years – nearly as long as your working life! If you are lucky enough to receive a full state pension, you are looking at income of £107.45 per week for 30 years…
If the powers that be are making us put money towards our pensions, then it couldn’t have come soon enough!
When will NEST apply to me?
Although the new rules come into force on 1 October 2012, only the very largest companies need to step into line immediately. The remaining companies have ‘staging dates’ when they are required to comply with the new regulations. For example, the smallest companies with less than 30 members will not need to act until at least January 2016.
Once your company gets involved, if you are over 22 and earn more than £8,105 a year you will be automatically enrolled in the work place pension scheme.
How much will NEST cost me?
To start with, you have to make a pension payment of 2% of your earnings between £5,564 and £42,475. At least 1% must come from your employer (and the balance from you).
By 2018 the minimum pension payment is 8% of earnings between £5,564 and £42,475 of which at least 3% must come from your employer (and the balance from you).
Are there any alternatives to NEST?
Employers can choose what sort of scheme to use – as long as it meets certain criteria. It could be their own scheme, another arrangement or they may choose to enrol their staff into NEST. You may already be part of a pension scheme at work in which case you won’t notice any difference!
But if you are not a member, your company will let you know when the new pension rules come into effect, and how much you will need to contribute.
You do not have to take part, but you will have to ‘opt out’ as everybody will be automatically enrolled. Do remember that if you choose not to get involved, you will probably lose out on the contribution your employer would have made…
Henrietta Oxlade is an Independent Financial Planner with Radcliffe & Newlands and MyFamilyClub’s in-house finance sage! She has been advising individual clients since March 1988, which is why many of her clients consider her part of the family. If you want to contact Henrietta, email us on [email protected] and we’ll put you in touch.