Pension Reform from 2012 & NEST

Pension Reform 2012 and National Employment Savings Trust (NEST)

Many of our clients have been asking us about the Pension Reform which comes into effect from October 2012.

From October 2012, the Government is introducing pension reforms and all employers will be required to offer their employees, who meet certain criteria, automatic enrolment into a workplace pension – NEST (National Employment Savings Trust), or a suitable alternative (for example, Group Pension Plan, SSAS or SIPP). This will include compulsory contributions by employers for employees.

The implementation for this will be tiered and gradually applied, from sometime between 2012 and 2017 (dependent on the size of business from largest to smallest).

When it comes round, employers will be required to automatically enrol all eligible employees in a qualifying pension scheme and make contributions to their plan – unless your employee ‘opts out’ – which you cannot be seen to encourage. There are proposed significant fines for non-compliance (which will be monitored via PAYE and the Pensions Regulator).

The criteria for eligible employees are:

•  Employees who work or ordinarily work in Great Britain
• Aged at least 22, but have not yet reached State Pension Age
• Earn above the earnings threshold for automatic enrolment (£7,475 gross a year in the 2011/12 tax year)
• Not already active members of a qualifying pension scheme

Contributions will be slowly phased in and introduced as follows from 2012 to 2017:

 Phase                    Employer Pays        Employee Pays         Tax Relief

From 2012                  1%                                0.8%                     0.2%
From 2016                  2%                                2.4%                     0.6%
From 2017                  3%                                 4%                        1%

The first tranche in October 2012-2013 is expected to be mainly the larger employers, while 2014 – 2017 are likely to be for the smaller employers. However, a few randomly selected small employers may be brought in earlier to test the system! Employers will be informed by the regulator when they need to implement a scheme, however, you can plan and implement a plan in advance of your staging date.

In most cases there is time to discuss your options and the best way to implement this for your workforce.  You should be aware it will have implications for your payroll administration, general running of personnel administration and record keeping as well as the complex pension planning required.

CST are able to offer you advice on all aspects of the planning required for these changes, from payroll changes through to arranging a suitable pension plan or reviewing your current pension offering to ensure this is compliant.

Although you may have some time until you are required to implement the changes, if you have any questions or would like some advice, please contact our Financial Adviser, Gretchen Betts on  gretchenb@clayshawthomas.com or telephone 01656 867167.