NPSS - Pensions Savings Scheme - National Pensions Savings Schemes - Avidity Wealth Management FSA Personal Accounts NPSS

National Employment Savings Trust (NEST) previously known as Personal Accounts

In 2006 the government published a white paper on workplace pension reform aiming to increase individuals saving for retirement. Included in the document were initial proposals for Personal Accounts now known as NEST. These workplace reforms were set out in the Pension Act 2008.

The following rules are to apply to all UK employers. These are being phased in from midnight on 5th April 2012 :

All employers will ultimately have to contribute 3% of salary to a pension for all staff
All employees will have ultimately to contribute 4% of salary to a pension
The government will contribute 1% in tax relief

Staff will be automatically have to be enrolled in a NEST scheme unless they are members of a pension scheme which is has approved exempt status.

What are the issues for employers?

If an employer has no pension scheme in place now Avidity Wealth Management can work with the employer to ensure that they are fully compliant in the most cost effective way. The bottom line is that NEST will increase staff costs and significantly increase employer's administration. Employers will have to find the funds and the time to run a NEST scheme. We at Avidity Wealth Management can help smooth the transition to pension compulsion and assist by minimising cost and reducing admin time.

Employers with a scheme in place will need to review their scheme to ensure it is in line with NEST requirements. Contribution rates and employees eligibility criteria are amongst the potential amendments.

What is best for your company NEST / Personal Accounts or exempted scheme?

When discussing NEST schemes with employers we aim to assist with the set up an exempted scheme for the following reasons :

From midnight 5th April c.10 million employees will start to be enrolled in NEST schemes administered by the government. The potential risk of meltdown to payroll companies linked to the government's poor track record on large IT projects mean that most businesses do not want to be exposed in this area.
The maximum contribution to a Personal Account is £416.66 per month which means that higher paid staff or those wishing to make large pension contributions are not fully catered for. As a result employers will need to run two schemes if they opt for Personal Accounts.
The maximum contribution to a NEST is £3,600.00 per annum which means that higher paid staff or those wishing to make large pension contributions are not fully catered for. As a result employers will increase the administrative burden as there will be a need to run two schemes if they opt for NEST.
The fact that Personal Accounts will be on total earnings could create quite a lot of extra work for HR/Payroll if staff are paid on a variable basis i.e. bonus/commissions or overtime.
It looks likely that 2% of every contribution paid into the scheme is going to pay for NEST scheme start up costs this is on top of the annual management charge that will apply to the fund.
Pension transfers either in or out of NEST are not allowed. This means that staff can not consolidate existing pensions and reduces the flexibility for members. This may be reviewed in 2017
The fact that NEST will be on total earnings could create quite a lot of extra work for HR/Payroll if company staff are paid on a variable basis i.e. with a bonus, commissions or overtime.
NEST Schemes will offer very few investment choices. An exempt scheme can offer a wide range of funds tailored to individual members risk levels and age. In recent years employees have taken control of their pension funds whereas this will be far harder with a NEST Scheme.
Staff would be able to enrol into a NEST scheme from day one of employment whereas exempt schemes could potentially retain an eligibility period.
Who will provide advice to staff on NEST? Will it be the HR department? Will it be the company directors?

If you would like a free review of the options available to your company then do contact us and one of our corporate independent advisers will be in touch.

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