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Category: Money

All UK Firms Must Have a NEST

Written on October 28, 2010 by Japhet Writ

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"The National Employment Savings Trust (Nest) will be the new low-cost pension scheme that will be the vehicle for saving for millions. For the first time, employers will have to make pension contributions for eligible workers from 2012." ---Steve Webb, Pensions Minister, UK

The government gave its nod that all UK businesses, regardless of size, should offer a company scheme or enroll their staff into the new (). is set to begin by 2011, and all firms are expected to be part of the scheme by September 2016. To be eligible for automatic enrollment, an individual must earn at least £7,475 per annum. However, their contribution will depend on the current national insurance earnings threshold — £5,715. Workers that earn between those levels can opt in to , with employer’s contribution as well.

The principle behind the automatic enrollment of employees into pension schemes was based on the Pensions Act of 2008. Its key feature: All employers should offer an adequate for their eligible staff. By eligible staff, the Act means employees who are aged 22 and above, and earns more than £7,475 a year. If there’s no such scheme in a firm, then a worker must be enrolled automatically in NEST. Due to this, businesses are given a three-month grace period to enroll their laborers in either arrangement. According to the revised NEST plan, a staff who chooses to sign up before the given time elapsed will force his company to make contributions as well. The aim is to guarantee people who often switch a job to build a pension pot for their retirement.

But contributions from staff and employers will be phased in. Until October 2016, the minimum over all contribution will be two percent with one percent share from the employers. From October 2016 to September 2017, it will rise to five percent and two percent respectively. And by the following month, the total contributions will be eight percent, with employers contributing at least three percent.

However, pension consultants of Aon Hewitt stated that lifelong savings in NEST would only produce a modest pension. According to John Foster of Aon Hewitt, their projections unveiled that an individual earning £20,000 and starts their pension at 30 can expect an annual retirement income of £1,973. Still, actuaries like Hymans Robertson opined otherwise.

“Based on UK average earnings of £25,000 a year and the 8% contribution rate we estimate employees could accrue a pension of £7,000 based on 30 years of contributions or £2,000 based on 15 years worth.”

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