Key facts and myth buster

Key facts and myth buster

Contents 3 Background to pension reform Key facts 4 Workplace pension reform 15 key facts 8 Introducing NEST 9 The main features of NEST 10 Who is NEST for? 11 Flexibility within the contribution cap 12 How can you use NEST? Myth buster 15 Putting the record straight Some of the areas this booklet covers are set out in the legal rules that govern NEST, known as the order and rules. We ve taken care to make sure this booklet is an accurate summary of some of these key points in the legal rules, but it doesn t cover everything. The order and rules will override where there are any differences. You can read the full order and rules at nestpensions.org.uk There is also an easy-to-understand summary of NEST s order and rules at nestpensions.org.uk Find out more here dwp.gov.uk/policy/pensions-reform/workplace-pension-reforms 2 Key facts

Background to pension reform Government estimates suggest that around seven million people are not saving enough to give them the retirement income they want or expect. The Pensions Act 2008 established new duties on employers aimed at tackling this challenge which were introduced in October 2012. This means that employers have to enrol some or all of their workers into a pension scheme that meets or exceeds certain legal standards and may need to make a minimum contribution. NEST (National Employment Savings Trust) is one of the pension schemes employers can use to meet their new duties. Who will be automatically enrolled? Employers need to automatically enrol workers aged at least 22 but under State Pension age who earn more than 9,440. This figure applies to the 2013/2014 tax year, and will be reviewed every year by the government. These people are known as eligible jobholders and their employers have to make a minimum contribution into the pension scheme on their behalf. Workers who are automatically enrolled into a scheme can choose to opt out if they want to. Who else can choose NEST? Other individuals have the right to ask to be enrolled into their employer s pension scheme if they want to. Depending on the worker s earnings, their employer may also have to make a contribution. Key facts 3

Workplace pension reform 15 key facts 1. The Pensions Act 2007 reformed State Pensions and introduced arrangements to increase the State Pension age. 2. The Pensions Act 2008 reformed workplace pension provision. The reforms aim to encourage saving for retirement. 3. Automatic enrolment is designed to actively involve people in saving. It aims to make it easy for individuals to save for retirement. 4. Workplace pension reform means that starting from October 2012 employers have to automatically enrol all eligible jobholders into a pension scheme that meets or exceeds certain legal standards. These standards include the minimum that employers have to contribute to a worker s retirement pot. 5. Other workers can ask to be enrolled. Depending on their earnings, their employer may also have to make a contribution. 6. The requirements on employers will be phased in and increase gradually to the minimum level to help employers and jobholders adjust. 4 Key facts

7. The total minimum contribution to a worker s retirement pot will be 8 per cent of their qualifying earnings. 1 Of this 8 per cent, the employer will have to contribute a minimum of 3 per cent. The rest will be made up of tax relief and the jobholder s contribution. 8. The employer duties and how they are implemented are specified by legislation. The reforms are introduced in stages from 2012 with the largest employers affected first. 9. Workers have the right to opt out of the pension scheme they have been automatically enrolled into within one month of this taking place. If they choose to opt out in this way they will receive a refund of their contributions. 10. The Department for Work and Pensions (DWP) will implement the planned reforms and NEST Corporation will work alongside DWP on matters relating to NEST. The Pensions Regulator (TPR) will regulate NEST Corporation and the scheme ensuring that it continues to meet its obligations. 1 This is the band of gross annual earnings on which contributions are calculated. This is currently between 5,668 and 41,450 a year for the 2013/2014 tax year., and will be reviewed every year by the government. Qualifying earnings include a worker s salary, wages, overtime, bonuses and commission, as well as statutory sick, maternity, paternity or adoption pay. Key facts 5

15 key facts continued 11. NEST is an easy-to-use, low-cost pension scheme any employer can use to meet new legal duties that started to be introduced in 2012. 12. NEST has been set up to help millions of people who currently don t have access to a workplace pension. 13. Employers can choose NEST or another qualifying workplace pension scheme. 14. The DWP is responsible for co-ordinating activity for the reform programme, including agreeing policy with ministers and overseeing delivery. 15. TPR is a non-departmental public body (NDPB) and the UK regulator of workplace pension schemes. Its role is to work with trustees, employers, pension specialists and business advisers to protect pension scheme members benefits and encourage high standards in running pension schemes. Under the reforms it has a new role to maximise compliance with new employer duties, as well as new safeguards to protect workers who want to save in a pension scheme. TPR will be responsible for making employers aware of their duties and how to comply with them. Information provided by the DWP, The Pensions Regulator and NEST Corporation. For further information about Government policies go to dwp.gov.uk/policy/pensions-reform. For information about compliance with the employer duties contact The Pensions Regulator at thepensionsregulator.gov.uk 6 Key facts

NEST will be open to employers of any size or sector Key facts 7

Introducing NEST NEST is a workplace pension scheme that any employer can use to meet the new duties. It allows employers to provide a workplace pension scheme for workers who may not have had access to a workplace pension scheme before. NEST aims to make it easy for employers to meet the new legal duties that started to be introduced in 2012. 8 Key facts

The main features of NEST It s easy to administer with straightforward and convenient online services and tools. It offers flexibility over contribution levels and the way these are calculated. An individual s membership of NEST can travel with them throughout their working life. This is why there s no continuing administration for employers when a NEST member leaves their employment. For new joiners who are already members of NEST, all contributions made on their behalf can be added to their existing retirement pot. Also more than one employer can contribute to a member s NEST retirement pot at the same time. NEST Corporation, as the Trustee of NEST, has a number of legal duties - one of which is to act in the interests of its members. NEST Corporation has a public service obligation to run NEST so it s open to any employer that wants to use it to meet the new duties. This means that employers of all sizes and sectors can use NEST. NEST Corporation s investment approach for NEST is specifically designed for the needs of a target market largely new to pensions saving. Up to 4,500 per year can be paid into each member s retirement savings pot. This is the annual contribution limit for the 2013/2014 tax year, and will be reviewed every year by the government. NEST Corporation is not allowed to accept transfers in or pay transfers out except in very limited circumstances. Key facts 9

NEST for savers Who is NEST for? NEST for employers Employers can use NEST on its own or alongside an existing scheme they have in place. They can use it to make the minimum contributions necessary to meet their new duties, or to contribute more than the minimum, if they want. NEST members have one retirement pot for life. If a member changes job and their new employer uses NEST they can receive contributions from their new employer into their existing retirement pot. This means no continuing administration for an employer when a NEST member leaves their employment. Their new employer can simply make contributions into the member s NEST retirement pot. More than one employer can contribute to a member s NEST retirement pot at the same time. Whether a member wants to choose how their money is invested, or prefers to let NEST take care of their retirement pot, we ll aim to make sure their money is managed in the right way for them. NEST for advisers NEST is open to any employers who want to use it to meet the new duties. Automatic enrolment may create demand from more employers for workplace pension scheme advice. NEST can help advisers serve clients they may not have been able to serve before. 10 Key facts

Flexibility within the contribution cap For most workers saving in NEST, there will be room within the annual contribution limit of 4,500 per year for employers and/or members to contribute more than the legal minimum contribution. This figure applies to the 2013/2014 tax year, and will be reviewed every year by the government. Within the contribution limit there is also flexibility around how contributions are structured. For example, an employer could make contributions on a worker s total earnings instead of their earnings above the lower qualifying earnings threshold. Key facts 11

How can you use NEST? You can use NEST: as a sole scheme for all the workers in an organisation, for example if there is no current pension provision in place for a particular group of workers alongside an existing scheme already in place for a different category of workers as an entry level scheme where there is an existing scheme that has a waiting period as a base scheme to ensure compliance with the new employer duties, using another scheme to pay in additional contributions. 12 Key facts

An individual s retirement pot is theirs for life Key facts 13

14 Key facts

Myth buster: putting the record straight

16 Myth buster 750,000 employers currently offer no workplace pension provision

Myth: Reality: Myth: Reality: All workers will be automatically enrolled into NEST. It will be up to employers to choose a suitable pension scheme to meet their new automatic enrolment duties. This may mean using an existing scheme, setting up a new one, using NEST, or choosing a combination of options. Automatic enrolment means employers no longer have the freedom to choose the best pension scheme for their workers. Employers can choose the pension scheme they believe is most appropriate. However the new laws set out certain legal standards that schemes must meet to comply with the legislation. NEST will be one of the schemes that meets these standards. Myth buster 17

18 Myth buster NESTwill be high quality, low charge and easy to access

Myth: Reality: Myth: Reality: NEST is a pension scheme that s run by the government. NEST Corporation is the trustee body that has overall responsibility for running NEST. It s a non-departmental public body that operates at arm s length from government and is accountable to Parliament through the Department for Work and Pensions (DWP). NEST Corporation has a Chair and up to 14 Trustee Members. Together they form the Trustee of the scheme. As the Trustee they have a number of legal duties, one of which is to act in the interests of the members of NEST. NEST and NEST Corporation will be regulated by The Pensions Regulator. NEST is only suitable for small companies. NEST is open to any employer that wants to use it to meet the new duties. This means that employers of all sizes and sectors can use NEST for some or all of their workers. Myth buster 19

Myth: Reality: Myth: Reality: The minimum level of contributions isn t enough to build up a reasonable income in retirement. The government has set out minimum contribution levels for automatic enrolment which apply to defined contribution schemes such as NEST. The minimum level is a starting point and encourages people to save for their retirement. Employers and workers can both contribute more than the minimum if they wish. The annual contribution limit for NEST will deter potential members. In most cases there ll be headroom under the limit for employers and/or members to pay more than the legal minimum. The contribution limit, currently 4,500 per year, will be adjusted each year. 20 Myth buster

NEST can be used in a variety of ways Myth buster 21

22 Myth buster NEST can be used either as the sole scheme or alongside other pension provision

Myth: Reality: Myth: Reality: NEST can only be used to meet the legal minimums required. Employers can decide to offer more than the minimum requirements if they choose NEST or any other occupational scheme. NEST will compete with existing pension schemes. NEST has been set up to complement existing workplace pension provision. It s specifically designed to meet the needs of its target market who aren t currently served by existing pension providers. According to research 750,000 2 employers in the private sector offer no workplace pension. NEST, together with the reform programme, will increase access to workplace pensions for millions of people. 2 DWP modelling of Small and Medium-sized Enterprise Statistics 2007 and Employers Pension Provision Survey 2007. Myth buster 23

Myth: Reality: NEST will be a poor relation to other workplace pension schemes. NEST Corporation works with global leaders to ensure we have the right infrastructure and processes in place for every stage of delivering the scheme. NEST s scheme administration is delivered by Tata Consultancy Services (TCS), which is part of the Tata Group. TCS has more than 30 years experience in the UK insurance sector with 90 insurance clients including the top seven UK insurers. Its UK subsidiary, Diligenta, administers more than 3.5 million life and pensions policies. NEST s fund administration partner is State Street Corporation, which provides fund administration services to more than 90 UK pension fund clients and administers more than 1,000 pension funds worldwide. The fund managers are UBS Global Asset Management, State Street Global Advisors UK, BlackRock UK Institutional Business, HSBC Global Asset Management, F&C Investments and Royal London Asset Managment - all have excellent track records. 24 Myth buster

Myth buster 25

26 Myth buster NEST will have high standards of governance

Myth: Reality: NEST will be difficult to administer. NEST is an online pension scheme that s specifically designed so employers can provide easy access for their workers. The scheme is easy to administer and employers can delegate someone else to administer for them if they want to. NEST members have one retirement pot that can travel with them throughout their working life. This means there will be no continuing administration for an employer when a NEST member leaves their employment. For new joiners who are already members of NEST, all contributions made on their behalf can be added to their existing retirement pot. Also, more than one employer can contribute to a member s NEST retirement pot at the same time. This means they can contribute for workers who have other jobs, such as part-time workers. Myth buster 27

NEST Corporation St Dunstan s House 201 211 Borough High Street London SE1 1JA Contact us: Call: 0300 303 1949 Email: employer.enquiries@nestcorporation.org.uk Visit our website: nestpensions.org.uk Find out more online at nestpensions.org.uk NEST Corporation 2013. This document has been created by National Employment Savings Trust Corporation, the trustee of the National Employment Savings Trust (NEST). This is not and is not intended to be financial or other professional advice. The information contained in this document is correct at the time of its publication. NC008 KFMB 04/2013