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National Employment Savings Trust – NEST
What is it?
Formerly known as Personal accounts, the National Employment Savings Trust (NEST) is a new simple low cost pension scheme. It will be introduced as part of a government workplace pension’s reform. It is aimed to help encourage more people to save for retirement.
Implemented in 2012, NEST will regulate in the same way as existing trust-based defined contribution occupational pension scheme. It will be regulated in the same way as existing trust-based defined contribution schemes.
The pension scheme will provide you as a worker with a simple low cost pension scheme with chargeable rates of 2% on the value of each contribution to begin with and an annual management charge of 0.3% value of the fund.
Contribution levels will then be phased in which will then rise to 8% by the time all employers are involved in the scheme up until 2016. At this point you will have to contribute 5% and your employer, 3% inclusive of tax relief.
Aim
The introduction of the National Employment Savings Trust comes as a government move to encourage greater retirement saving in Britain in order to stave off the current UK pension crisis.
The National Employment Savings Trust is aimed at low and moderate income earners who are not currently members of an employer pension plan or have no other form of pension cover. It is hoped that its low cost and simpler structure will make it more accessible to people on these lower based incomes. According to research from the department of work and pensions (DWP), around seven million of us are not saving enough to deliver the pension income required to live a comfortable retirement.
Alarmingly, the rise in the number of people turning 65 is also set to double by 2055 and as an ageing population it is become increasingly important for us to put some money aside towards a pension pot. With Pressures mounting from people living for longer coupled with too many of us relying on state pension benefits the government has been forced to promote better private saving.
In an attempt to tackle this problem the government has introduced measures to ensure all employees are automatically enrolled into a workplace pension scheme by 2012 which includes the National Employment Savings Trust (NEST).
The auto-enrolment of NEST will mean you will be obliged to join a workplace pension scheme as long as you are over the age of 22 and below state pension age of 65, however you do have the option to opt out if you wish.
If you do not create alternative pension arrangements or are not already involved in a suitable pension scheme, NEST will be used as a default fund where you can invest your pension contributions.
Pros
NEST is a great way to get you saving for retirement especially if you work in a company that does not currently have a bespoke scheme for their staff. This means you no longer have to worry about a penny-pinching retirement, taking away much of the difficulties you may face in trying to save by yourself.
Even if you join NEST you will be able to continue saving in the scheme if you leave your post or move to an employer that does not operate a NEST scheme.
NEST offers a variety of funds to opt for as well as providing a default pension fund.
The scheme is flexible and can be used in different ways by different employers so in a lot of cases there is leeway if you or your employer would like to contribute more than the minimum contribution amount. You also receive tax relief on any contributions made, giving your pension pot an even bigger boost.
Charges and annual fees for NEST are designed to be significantly lower than average pension plans, making them more affordable to the average earner.
Cons
Although the nest scheme is flexible when changing jobs allowing you to continue saving in the fund, you are not permitted to make any withdrawals until you reach retirement age.
Need to Know
The official launch date of the NEST scheme is scheduled for 1 October 2012; the scheme will be phased in gradually and all employers will be required to pay 3% in employment contributions by the end of 2017.
If you are eligible for auto-enrolment being between the ages of 22 and 65 you will be automatically entered into your employers pension scheme including NEST, however if you do not wish to be entered into an occupational scheme you can always opt out.
There are restrictions on transferring money in and out of the scheme but it does provide flexibility when changing jobs.
It is up to your employer to choose suitable pension schemes for members of staff so it could mean using existing pension schemes, setting up alternatives or using NEST or it could be a combination of all of these.
Summary
Remember, NEST is only one potential savings route so it is always good to use other sources of investment in conjunction with a pension’s scheme, especially as you will not have access to this fund until you are at least 65. NEST is a great government incentive for us to change our saving habits so we can experience an enjoyable retirement.
If you have not done so already it may be worth asking your employer about any pension schemes that they have on offer as let’s face it the sooner you start saving the more time you will have to accumulate a tidy sum by the time you retire.
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