There are BIG changes on the horizon in the age old world of pensions.
NEST is the acronym for the National Employment Savings Trust (previously called Personal Accounts). The Pensions Bill, which finalises much of the awaited detail on NEST, is currently working its way through the House of Commons and Royal Assent is expected later this summer.
NEST is due to be implemented on a four-year rolling basis from October 2012. Employers will be given 12 months notification of the date by which they must comply with these requirements - this is known as the "Staging Date". Any employer wishing to check their Staging Date can find this on the HMRC website by entering their PAYE reference and the number of employees they have.
From this date employers must enrol and make contributions on behalf of all Eligible Jobholders into either the new NEST arrangement or an alternative arrangement which meets certain minimum criteria.
You need to start making decisions now to ensure that the right approach is taken for your business and your workers. 2012 is no longer just a deadline headache for the Olympic Committee!
What are the minimum requirements?? We hear you cry …
Eligibility: you will either need to automatically enrol all Eligible Jobholders into a suitable pension arrangement of your choice or enrol them into NEST. Eligible Jobholders are those who:
- are aged between 22 and 65;
- are earning over £7,475 p/a; and
- are working, or ordinarily working, in the UK.
This includes part-time and temporary workers. All Eligible Jobholders must be auto-enrolled into one of these arrangements. Certain Non-Eligible Jobholders will also be entitled to voluntarily enrol into NEST, requiring an employer contribution. Other workers will be defined as Entitled Workers, meaning they must provide a pension saving arrangement to the worker, but the employer need not contribute to it.
Each employer will therefore need to assess each of their workers to determine which category they fall into with a view to deciding whether to auto-enrol them in an arrangement and what information should be provided to the worker.
Contributions: are based on Eligible Jobholders' earnings, including salary, wages, commission, bonuses, overtime, statutory sick pay, statutory maternity/paternity pay and statutory adoption pay, between £5,035 per annum and £33,540 per annum (these figures are due to change in January 2012). Contribution rates will need to be paid at the following minimum rates: 4% from the employee (plus 1% basic rate tax relief) and ultimately 3% from the employer (initially 1% in October 2012 until 30 September 2016, rising to 2% for the following year, then rising to the full 3% on 1 October 2017). For those employers who do not currently contribute to a pension arrangement (either because they do not have any pension arrangement in place, or because employees have decided not to join, or have opted out of, the existing arrangement) this may represent a significant additional long-term cost.
Duties and Penalties: it is not possible for employers to contract-out of or exclude any of these new duties and there is the potential for a worker who has suffered detriment because of a breach by his or her employer to claim at an employment tribunal. The Pensions Regulator will also be responsible for ensuring employers fulfil their new duties and will be able to issue a range of compliance notices and penalties including fixed penalty notices of £400 and escalating penalty notices which carry a daily rate ranging from £10 to £50,000, depending on the number of Eligible Jobholders the employer has.
What do we need to do now?
- You need to understand in detail what will be required of you as an employer;
- You need to check if your pension arrangemetns meet the minimum requirements of the new provisions;
- You need to decide whether you want to alter your current pension arrangements and contracts of employment;
- You may need to make sure you have appropriate systems in place, including training HR departments to deal with these new arrangements; and
You need to consider, if NEST means you incur future additional costs, how you will meet these costs - you may want to develop a policy to freeze pay-rises or bonuses to help you meet these future pension costs which may be very significant, particularly where there is presently a low take-up of the employer's current voluntary pension arrangement.