28.10.10

Future Occupational Pensions: Auto-Enrolment and NEST Will Go Ahead

Following the recommendations of an independent review, the Government has confirmed plans to implement automatic enrolment into workplace pensions and the National Employment Savings Trust (NEST) will go ahead. 

The reforms mean employers will be required to make pension contributions for employees for the first time, although staff will have to earn at least £7,475 a year to be eligible to be included in the scheme.  Under the new arrangements, companies and workers will be required to contribute a combined minimum of 8 per cent of earnings but employees will retain the right to opt out.

The changes are expected to mean that around three quarters of a million employers who do not currently offer their staff a pension will have to do so and that depending on how many employees decide to opt out, between four and eight million people could be saving in a pension for the first time.

The review rejected calls to exempt the smallest employers from the new obligations because doing so would exclude 1.2 million employees from automatic enrolment. The scheme will therefore apply to all employers, regardless of size, and will be phased in from October 2012.  Large employers will be brought into the duties first, followed by medium-sized and then small firms. Any new businesses established between April 2012 and March 2016 will be brought in at the end of the introduction period, so that  they have time to establish themselves before coming under the new duties.

The review also confirmed the role of NEST (the National Employment Savings Trust), which will offer an alternative pension arrangement for employers who do not wish to set up pension schemes of their own.

In considering whether to exempt the smallest employers, the review concluded that there would be substantial practical problems in doing so:

“Identifying those employers with five employees at any one time is almost certainly beyond the capacity of current systems.”

“In addition, incentives to hide or distort the number of employees could be considerable.” 

The review’s report adds:

“We could not have come to this conclusion had we not been convinced that NEST will provide a pension scheme that will be appropriate to most small employers, and one which will be very easy for them to use.”

Confirming the decision to go ahead, Minister of State for Pensions, Steve Webb said:

“Our reforms will ensure that millions of people will start to save for their retirement, many for the first time.  I welcome the sensible and balanced proposals from the independent review team, which will help ensure automatic enrolment works.  Building on the consensus for pension reform, NEST will play its part as we transform the savings culture in this country.”

The review also recommends that employers will have three months to enrol eligible staff.

Dr Adam Marshall, Director of Policy at the British Chambers of Commerce, commented: 

“Thanks to the 12-week exemption, companies with a high turnover of staff or a large number of seasonal workers will not have to spend a lot of time and money enrolling employees into pensions that they do not intend to continue. Employment agencies, which will be very important in the fight against unemployment and underemployment in the years ahead, will benefit hugely from this change.”

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