Auto Enrolment, Workplace Pensions, NEST

We will all have probably heard phrases in the press recently such as “Auto-Enrolment”, “Workplace Pensions” and “NEST” and no doubt some of us will have seen the television advertisements with Karen Brady, Nick Hewer and Theo Paphitis but I suspect some of you may be unclear as to who it affects and if it will affect you.

So without going into too much detail let’s try and clarify things a little.

The previous rules for employers regarding workplace pensions stated that if you had 5 or more staff you had to make a scheme available for your workforce but were in no way obliged to actually contribute to it on their behalf. This, in reality, required little more than the employer putting up a poster in the canteen with the contact details for a pension provider.  Under auto-enrolment this will change. The largest companies have already had to comply with the process which started on the 1st October 2012 and is being phased in over a 5 year period.

Eventually this will trickle down to incorporate all companies through a series of staging dates. Once fully applied an employer with one or more eligible (aged between 22 and State pension age) employees will need to ensure contributions of 8% of salary are made to a suitable pension scheme. The 8% contribution is composed of a 3% employer contribution, a 4% employee contribution and 1% of tax relief, although if your employer was feeling generous he could pay the whole 8% or offer to further supplement your employee contribution.

Auto-enrolment doesn’t specify a single pension scheme or even a type of pension scheme, so if your company already has a scheme in place it’s quite possible that it is already fulfilling its auto-enrolment obligations.

This being said it’s important for them to check that it is compliant, specifically regarding who the members are and that the levels of contribution are sufficient, as the rules are extensive.

For employers who don’t wish to set up and administer their own company pension scheme the government have set up a pension scheme called NEST (National Employers Savings Trust) into which employers can choose to pay contributions. NEST however only provides limited functionality and so to date inflows have been limited with most firms opting to run their own arrangements.