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National Employment Savings Trust (NEST) – Further guidance for employers and employees
Thursday, February 11th, 2010
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When the Government’s pension reforms are introduced from October 2012, all qualifying employees will have to be enrolled automatically into a qualifying pension scheme. Employers will be able to continue to use their existing pension schemes to meet their new statutory obligations if those schemes meet the minimum statutory requirements, which include the ability to handle automatic enrolment and to make the minimum employer/employee contributions.
Employers without an existing scheme, or those whose current scheme does not meet the statutory standards, may choose to use the National Employment Savings Trust (NEST) scheme to enrol employees who are not already pension scheme members or new employees when they qualify.
The Pensions Regulator has provided general guidance on the choices that will be open to employers and employees in order to meet their statutory obligations. The following is a summary of that guidance, with particular slant towards the issues that employers must consider in deciding whether or not to use the NEST scheme.
Automatic enrolment will apply to “qualifying employees”, i.e. those who are between age 22 and state pension age and earn more than the defined minimum earnings, unless they are members of
- a final salary pension scheme that meets defined minimum standards as to the level of benefits it provides, or
- a money purchase pension scheme, personal pension plan or stakeholder pension scheme that meets the defined level of employer contributions.
From the employer’s staging date, i.e. the date between 2012 and 2016 when the employer must first auto-enrol employees, those qualifying employees who are not at that time members of one of such schemes must be automatically enrolled in one of them or in the NEST scheme. The NEST scheme is an occupational money purchase pension scheme that is designed to meet all of the statutory requirements.
Between now and their staging date, employers need to decide what they must do about
- qualifying employees who are already members of a workplace pension scheme at the staging date,
- qualifying employees who are not members of a workplace pension scheme at the staging date, and
- new qualifying employees who start after the staging date.
Some employers may decide to continue with their existing scheme on the basis that, by the staging date, it will have become a qualifying scheme. Others may decide to replace their existing scheme with a qualifying scheme, or run a new qualifying scheme alongside an existing scheme.
An employer may decide to close an existing workplace pension scheme, or close it to new members, and make other arrangements. In this situation, if the scheme is closed before the employer’s staging date (after following the necessary consultation processes),
- the affected employees must, under existing statutory requirements, be given access to a stakeholder pension scheme, and
- from the staging date, the qualifying employees must be enrolled automatically in the NEST scheme or in another qualifying scheme.
Employers with a final salary scheme
There will be no requirement to enrol existing scheme members in the NEST scheme if the scheme meets the defined standards for final salary schemes. If new qualifying employees or existing qualifying employees who are not scheme members are enrolled automatically into the final salary scheme, there will also no requirement to use the NEST scheme.
However, if the rules of the scheme prevent some qualifying employees from joining the scheme, either the scheme rules must be changed before the staging date or the employees must be enrolled automatically in the NEST scheme or another qualifying scheme.
The advice for employees who qualify to join their employer’s final salary scheme but have chosen not to join is to consider doing so now. Faced with a large number of employees being auto-enrolled into the scheme from the staging date, the employer may consider closing the scheme, or at least closing it to new members. The pension benefits from a final salary scheme are likely to be considerably better than those provided by the NEST scheme or any other alternative. Also, the NEST scheme will set a limit on annual contributions that will be lower than that permitted by a final salary scheme.
Employers with a money purchase, stakeholder or personal pension scheme
There will be no requirement to enrol existing scheme members in the NEST scheme if, by the staging date, the scheme makes the minimum statutory contributions and operates auto-enrolment for qualifying employees. If either or both of these conditions are not met, qualifying employees must be enrolled automatically in the NEST scheme or another qualifying scheme.
However, if the rules of the scheme prevent some qualifying employees from joining the scheme, either the scheme rules must be changed before the staging date or the employees must be enrolled automatically in the NEST scheme or another qualifying scheme.
Further information:
An Introduction to Workplace Pension Changes
Workplace Pensions Law is Changing
