The auto-enrolment roll out began in 2012 and is still ongoing today. Along with this new pensions scheme came NEST (The National Employment Savings Trust). This new occupational pension scheme is government backed and will allow your employees to contribute to their pension while they are working and then use their ‘pension pot’ to purchase an annuity which will enable them to receive a retirement income.
They will not need to pay any tax or National Insurance on the money they contribute and the money that you contribute will be on top of their salary; so in effect, they will be earning a little extra.
How Nest Began
Nest was created by the government as a straightforward way for employers to comply with auto-enrolment without having to go to the trouble of setting up their own in-house pension schemes. As a way of ensuring that the scheme stayed focused on those it was intended for – companies who employed staff on a relatively low wage – rather than larger more lucrative businesses, restrictions were put in place.
These restrictions have often been considered controversial, with some arguing that the government had put them in place as dispensation to other providers who felt that the government’s endorsement of the scheme threatened their popularity.
The Changes to NEST
It has recently been announced by the Pensions minister Steve Webb that the restrictions on Nest will be lifted in 2017. This change means that the annual contributions that savers can make will no longer be capped at £4,500, and the ban on transfers will also be withdrawn.
Once the change comes into effect, the minimum contribution from employees will rise to 5% from October 2017 and 8% from October 2018. Pensions minister Steve Webb was quoted as saying:
‘This will give employers the certainty they need that Nest will continue to be an appropriate scheme for them and their workers when minimum contributions rise, or should they choose to contribute more.’
Ministers agree that Nest should become part of the automatic transfer solution that they are currently legislating, therefore they intend to lift the restrictions on what can be transferred in or out of Nest.
How the Changes Will Affect Employers
The main change will be an increase in the amount of money that you will need to contribute to your employee’s pension. Here is a breakdown of costs:
- From October 2012 to September 2017 you will pay 1% and your employee will pay 2%
- From October 2017 to September 2018 you will pay 2% and your employee will pay 5%
- From October 2018 you will pay 3% and your employee will pay 8%