THE EDUCATION SECTION Every month we look at a particular financial topic in a little more detail. This month it is NEST & Workplace Pension Reform ____________________________ The background • The Government has tried to encourage people to save for retirement before with the introduction of stakeholder pension schemes in 2001 but, as this was not a great success, they are now introducing mandatory pension contributions for all employers in the UK. • The Government's introduction of NEST (National Employment Savings Trust) is intended to introduce a straightforward opportunity for employees to contribute to a simple low-cost savings vehicle. Their intention is to increase retirement savings throughout the UK and reduce the reliance on the State. • NEST is aimed primarily at the lower to middle income earners with the intention that they begin saving towards their own retirement. How will Auto-enrolment work? • Employees will automatically be enrolled into either a qualifying workplace pension scheme or NEST. • If employees do not want to become members of a pension scheme, they can choose to opt out, but if they choose to stay in then the employer will ultimately have to contribute a percentage of ‘band’ earnings. This is to be introduced on a sliding scale - see below. • When fully implemented, employers will have to contribute a minimum of 3% of their workers' band earnings, with employees contributing 4% of their band earnings & the Government topping this up with a further 1% tax- relief. Contribution levels • From your plan's start date to September 2017 - total minimum contribution 2%. Of this your employer must pay at least 1% • From October 2017 to September 2018 - total minimum contribution 5%. Of this your employer must pay at least 2% • From October 2018 onwards - total minimum contribution 8%. Of this your employer must pay at least 3% What are band earnings? • Band earnings relate to your income between £5,668 and £40,040 (using the figures for the 2013/14 tax year). The lower and upper levels for this band will change from time to time. Band earnings include overtime and bonuses - not just basic pay. • As an example, the contributions for someone earning £20,000 would be based on £14,332 (£20,000 minus £5,668). When will Auto-enrolment start for me? • The introduction of auto-enrolment is a reality. Employers' responsibilities started this October and will be phased in over 6 years. The phasing started with the largest employers - those with over 120,000 employees, If you are employed by a smaller company we have included a table below showing the latest date that your employer has to enrol you into either a qualifying workplace pension scheme or NEST. Useful links • Staging Date Calculator • The NEST website • Useful provider site Finally, as always, do not hesitate to contact us if you would like further details or information.