Pensions Reform – Are you ‘NEST’ Compliant?
The pensions reform legislation, introduced in 2012, will have wide-ranging effects across every field of business. You can prepare now by gaining a thorough understanding of the changes and their potential impact upon you and your company.
The key reforms affecting employers relate to the Government’s ideas for making it easier for more people to save for retirement. The Government estimates that about seven million people are currently under saving for retirement. As a result, it puts more emphasis on employers to help encourage more people to save.
What are you required to do as an Employer?
· You’ll need to automatically enrol employees into a ‘qualifying pension scheme’. This could be your own company scheme (if it meets certain criteria) or the National Employment Savings Trust (NEST), which is the scheme being introduced by the Government.
· You’ll be required to contribute a minimum of 3% (staged up to October 2017) of each employee’s eligible earnings which is intended to incentivise them to join. Their own personal contributions and tax relief will be added to this to meet a minimum 8% contribution rate.
The Government recognises that these reforms continue to place employers at the heart of pension provision. They are therefore proposing key measures designed to minimise the burden on you:
· Compulsory employer and employee contributions will be phased in.
· Simple, straightforward qualifying criteria for existing Company Schemes, meaning many exiting schemes should qualify.
· A ‘light-touch’ but effective compliance regime for new employer duties such as automatic enrolment.
Who will we have to Automatically Enrole?
Sometime between 2012 and 2016 (depending on the size of business and type of scheme) you will have to automatically enrole all eligible employees in a qualifying pension scheme and make contributions to their plan.
Employees eligible for automatic enrolment will be:
· those who aren’t already active members of a qualifying scheme; and
· are aged between 22 years and the State Pension age; and
· whose earnings are in excess of the income tax personal allowance (£7,475 in 2011/12)
What if we want to use our own Company Scheme for Automatic Enrolment?
If you want to use your own Company Scheme to meet the new requirements, it will have to meet certain qualifying criteria:
· Does it permit auto-enrolment?
· Are employees auto-enrolled within 90 days of joining the company?
· Does it have a default investment fund?
· Does it deliver the minimum contribution requirements? For money purchase schemes this is a minimum contribution of 8% of all earnings between the minimum threshold of £5,715 and an upper limit of £38,185, with at least 3% paid by the employer.
If you currently calculate contributions based on different rates, earnings bands or definitions of pensionable pay, your scheme will still be ‘qualifying’ provided the contributions meet the following criteria:
· If the scheme provides for minimum contributions for each jobholder of at least 9% (4% minimum employer contribution)
· If contributions for each jobholder are at least 8% (3% minimum employer contribution) and pensionable pay is at least 85% of total pay.
· If contributions for each employee are at least 7% (3% minimum employer contribution) and 100% of pay is pensionable.
The qualifying criteria are intended to allow you to easily compare and choose the form of pension provision that best suits your company.
How we can help?
We can provide realistic solutions for our clients to combat the forthcoming legislation and take the sting out of the potential costs surrounding it. Whilst helping build solutions we can also deliver effective process and communication, turning the complex and costly legislation into a valuable Employee Benefit.
For more information on the Auto Enrolment and NEST please contact us or refer to the official NEST website: nestpensions.org.uk
At CMS we appreciate every client is different. We understand the basic objective relating to any corporate advice is staff satisfaction and understanding. We have clients spread throughout the UK, with businesses ranging in size from 5 to 500 employees.
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I first met with David in respect of my personal pension arrangements. I was quite pleasantly surprised at the interest he took in myself as an individual, and over the subsequent years he has been extremely pro-active in proposing changes to both my investment policy and my contribution strategy with a view to maximising my fund in readiness for retirement. No matter when or what I asked for, he and his organisation responded with full detail and without delay. In conclusion and in these troubled times, especially in the financial world, I would not hesitate to recommend David and his capable and competent team for your pension requirements.
I was first recommended to CMS Financial Management by my longstanding company accountant and it couldn’t have been a better recommendation. Dave Marler and his team have been exceptionally helpful if assisting with my financial planning and that of my wife. They have provided a service above our expectations and have delivered for us what was said on the tin. I continue to have great confidence in the regular advice that we receive.
CMS Financial Services have always provided a professional service and made sure I was aware of any ‘Hidden Extras’. They consolidated my pensions and managed to wind up a quite complex old pension pension plan.
I have no problem recommending them highly.
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