d2 Financial Solutions

Nest - Questions & Answers

• What is Pensions Reform & Nest?

  Pension's reform is a package of both state and private pension changes, expected to be introduced in 2012, which will completely change the face of the pension industry in the UK. Employers will have new responsibilities to contribute to their workforce's pension plans, and this will have a big impact on their business.

  The overall aim of the government's pension reform strategy is to get more people saving for retirement. The Pensions Act 2008 is the second phase of these reforms and sets out new duties for employers. It allows for the establishment of the NEST scheme, aimed at low-to-medium earners.

  All employers in the UK, small and large, will need to take action to comply with their new responsibilities under the Pensions Act 2008.

  Nest is the government scheme which employers will have to offer employees following the changes to pension legislation from 2012 onwards. Employers can offer a private scheme if they wish however it is likely that these will cost much more to implement and run than NEST.

  Download more information about NEST

• What is automatic enrolment?

  This is a core employer duty under the pension's reform legislation, whereby an employer will have to arrange to automatically enrol all eligible jobholders into a qualifying scheme, unless the jobholder:

  • Is already active in a qualifying scheme at the auto-enrolment date, or
  • Decided to stop their active membership of such a scheme within a certain period before the auto-enrolment date

• What is automatic re-enrolment?

  When an eligible jobholder has opted out at the last enrolment date, or has chosen to stop making contributions or otherwise stopped being an active member of the scheme, the employer will have a duty to automatically re-enrol them, normally every three years.

• When do we need to act?

  There are various staging dates depending on the number of staff your company has and the PAYE end reference, the dates are as follows:

  STAFF NUMBERS	PHASING DATE
  350-499	1 Jan 2014
  250-349	1 Feb 2014
  240-249	1 April 2014
  150-239	1 May 2014
  90-149	1 June 2014
  50-89	1 July 2014
  Less than 50 with BZ in PAYE REF	1 August 2014
  Less than 50 with 00-01 in PAYE ref	1 Sept 2014
  Less than 50 with 02-04 in PAYE ref	1 Oct 2014

• What are the main employer responsibilities from 2012?

  Employers will have two main responsibilities:

  • They'll have to automatically enrol all eligible jobholders into a pension scheme which meets certain criteria
  • Ensure the total of the employer's and jobholder's contributions must meet a minimum level. However, if the jobholder decides they don't want to remain as a member of the scheme, they can opt out within a certain period. Their contributions will be refunded and the employer doesn't have to make any contributions. However, the jobholder will be auto-enroled again every three years to give them an opportunity to rejoin the scheme at a later date.

• What do employers need to do to run a pension scheme like NEST without support?

  In order to run a pension scheme in accordance with legislation employers will have to:

  • Identify which of your employees must be enroled into the scheme by law
  • Keep records of all members who wish to opt out of the scheme
  • The firm must automatically enrol members who opt out of the scheme every three years, which will create a significant administration burden for companies who don't have the systems to support this. The penalties for non-compliance will also apply to firms who fail to enrol members; therefore support is vital with this.
  • Add and remove members from the scheme, within one month of joining the firm and immediately when leaving
  • Prepare data to send to the scheme and complete applications for this
  • Prepare information to send to workers
  • Set up payroll process
  • Manage the scheme from month to month
  • Keep all legal records required for the scheme

• What will have to be paid into the pension following NEST?

  Contributions will be based on a percentage of earnings and will be increased in stages over a number of years to allow employers to absorb the cost more slowly. These figures are as follows:

  	Employee	Employer
  Oct 2012 to Oct2016	1%	1%
  2016 to Oct 2017	3%	2%
  2017 onwards	4%	3%

  Examples of the cost of contributions

• What will it cost for support and advice to help set NEST up?

  Estimated £200 - £1000 to initially set NEST up for an employer. Monthly on-going cost of £70 - £200 to run depending on the number of staff members employed by the firm.

• What happens if we don't have a pension for staff?

  A. Penalties will apply if employers do not offer a qualifying pension scheme to their staff members. Fixed penalties can be up to £50,000 and ongoing penalties for non-compliance can be up to £10,000 per day. Ongoing penalties are uncapped and will continue to be levied each day that an employer fails to put NEST in place. Employees will be able to notify The Pensions Regulator, who have been given a wide range of powers to fine employers heavily for non-compliance or for influencing staff members not to join a workplace pension scheme.

• What sort of protection will there be for employees who whistle-blow?

  Workers and jobholders, who whistle-blow against their employer, are protected by the Public Interest Disclosure Act 1998.

• What is inducement?

  It's illegal for employers to encourage employees to opt out or give up active membership of the pension scheme - known as inducement - for example by offering them cash or any other benefit.

• Will financial advisers have to 'police' employers' compliance?

  There's no statutory duty on advisers, but there will be a whistle-blowing facility to report non-compliance to the Pensions Regulator if they become aware of an employer's noncompliance.

• What is the Department for Work and Pensions' role?

  The Department for Work and Pensions (DWP) is the government department responsible for the development of UK pension policy and the law governing UK pension schemes.

  The DWP sponsors a wide range of public bodies to achieve its objectives, including the Pensions Regulator and Personal Accounts Delivery Authority.

• Do all staff members have to join?

  Most employees over the age of 22 will need to be automatically enroled into the scheme by their employer. They will be able to opt-out if they choose to themselves; however the employer will be responsible for automatically enroling them every 3 years.

  Download more information about NEST

• What services will d2 provide?

  d2 can provide full support to employers. Details of this can be found

  d2 NEST Services

• What will employer responsibilities be?

  Employers will have to provide a qualifying pension scheme to staff members. Employers will have to auto enrol all eligible staff members into this pension and then manage the process of members who wish to opt-out. All records must be kept of this process and all members who choose to opt-out must be auto enroled after 3 years where they can choose to opt-out again if they wish.

• If a jobholder opts out, does the employer still have to pay the contribution?

  No. If a jobholder chooses to opt out of the pension scheme, then the employer doesn't have to pay a contribution on their behalf.

• What do employers have to do if people choose to opt out?

  Employers must make sure that they follow the prescribed opt-out process, which will be set out in regulations. They'll have to stop deducting pension contributions from the jobholder's salary, notify the scheme, refund any contributions that were paid during the opt-out period and automatically re-enrol the jobholder every three years.

• What are qualifying earnings?

  In a pay reference period of 12 months, qualifying earnings are gross earnings between £5,035 and £33,540 (with proportionate amounts for a period of less than 12 months). These figures are based on 2006/07 earnings, and will be revised in the future, but are expected to be increased in line with national average earnings between 2006/07 and 2012/13.

  'Earnings' include:

  • Salary or wages
  • Commission
  • Bonuses
  • Overtime payments
  • Statutory sick pay, statutory maternity pay, ordinary or additional statutory paternity pay and statutory adoption pay
  • Such other sums as are allowed under regulations

  Most private pension schemes won't currently base contributions on all of these earnings.

• How will the Pensions Regulator know if employers have a qualifying scheme in place?

  Employers will have to 'register' (likely to be online) to tell the Pensions Regulator which pension scheme they're using to comply with their duties.

• What happens if an employer fails to carry out its responsibilities?

  All employers - regardless of the number of people they employ - will have to comply with pension's reform legislation. The Pensions Regulator will monitor employers to make sure they comply with the legislation. Measures can be taken against employers or third parties where there has been a breach. These include the issue of a compliance notice or unpaid contributions notice, which, if not complied with, may be followed by the issue of a fixed or escalating penalty notice.