Background and key facts: – National Employment Savings Trust – NEST Workplace Pension Scheme

It is estimated that around seven million people are not saving enough to give them the retirement income they want or expect. The Pensions Act 2008 establishes new duties on employers that start to be introduced from 2012.

For the first time employers will have to enrol their workers into a workplace pension scheme that meets or exceeds certain legal standards. Some of these workers will be enrolled automatically into this scheme and others only if they ask to be enrolled.

Jobholders will be eligible to be automatically enrolled into their employer’s scheme if they are:

• aged at least 22 but are not yet State Pension Age and

• work or ordinarily work in Great Britain or Northern Ireland and

• earn more than £5,035 a year. (Figure set in 2006/7 to be updated for 2012)

These people are known as eligible jobholders and their employer will have to make a minimum contribution into that scheme on their behalf. Jobholders who have been automatically enrolled into a pension scheme can choose to opt out if they wish.

Other individuals will have the right to be enrolled into their employer’s pension scheme if they are:

• jobholders aged at least 16 but who are not yet 22 with earnings of more than £5,035 a year. If these individuals ask to be enrolled their employer will have to make a minimum contribution

• jobholders aged at least State Pension Age but who are under 75 with earnings of more than £5,035 a year. If these individuals ask to be enrolled their employer will have to make a minimum contribution

• workers aged at least 16 but who are under 75 and who do not have earnings of more than £5,035. If these individuals ask to enrolled their employer will not have to make a minimum contribution, but it can if it chooses.

1. The Pensions Act 2007 reformed State Pensions and introduced arrangements to increase the State Pension Age. The Pensions Act 2008 reformed workplace pension provision.

2. The reforms aim to make saving for retirement the norm.

3. The workplace pension reforms mean that starting from 2012 employers will have to automatically enrol all eligible jobholders, and when asked by them, any jobholder, into a pension scheme that meets or exceeds certain legal standards. These standards include the minimum employers have to contribute to jobholders’ retirement savings pots.

4. Automatic enrolment is being designed to overcome the inertia that currently prevents many people from saving. Automatic enrolment will make it easy for individuals to save for retirement.

5. The total minimum contribution to all jobholders’ retirement savings pots will have to equal 8 per cent of their qualifying earnings.  (Qualifying earnings are more than £5,035 but not more than £33,540 a year. These figures will be updated for 2012. Total earnings include an individual’s salary, wages, overtime, bonuses and commission, as well as statutory sick pay, and statutory pay he or she receives during maternity, paternity or adoption leave.)

Of this 8 per cent the employer will have to contribute a minimum of 3 per cent. The rest will be made up of tax relief and the jobholders’ contribution.

6. Contributions will be phased in and increase gradually to the minimum level to help employers and jobholders adjust.

7. The employer duties and how they are implemented are specified by legislation. The reforms will be introduced in stages from 2012 with the largest employers affected first.

8. All jobholders will be able to opt out of the workplace pension scheme their employer has provided if they choose.

9. Three organisations will work together to implement the planned reforms – the Department for Work and Pensions (DWP), the Pensions Regulator and NEST Corporation, which is the trustee body responsible for running NEST.

10. NEST is a new low cost pension scheme any employer will be able use to meet new legal duties that start to be introduced from October 2012. It is being designed specifically to meet the needs of low-to-moderate earners and their employers.

11. NEST has been set up to help people who currently don’t have access to a workplace pension – typically those on low-to-moderate incomes.

12. Employers can choose NEST or another qualifying workplace pension scheme to meet their new duties.

13. NEST Corporation is the non-departmental public body (NDPB) that operates at arm’s length from government and is accountable to Parliament through the DWP. On 5 July 2010 NEST Corporation took over from the Personal Accounts Delivery Authority, which was wound up.