Posts Tagged ‘National Employment Savings Trust’

Kevin Burge

Pension Comfort?

Spence & Partners latest blog for Pension Funds Online –

A recent study undertaken by the National Employment Savings Trust (NEST) states that the “comfort” pension level is at least £15,000 p.a. (apparently this figure stands however many people there are in a household) but there is no happiness benefit above £40,000 p.a.

The report went on to say that it found that wellbeing jumps significantly once the income moves into the £15,000 to £20,000p.a.range.

These figures in turn will help to give people a more accurate idea of how much they need to save. A 22 year old earning £20,600 would only need to make the minimum pension contribution to get close to the £15,000 figure taking into account the state pension they would receive (expected to be at least £7500p.a. from April 2016). Unsurprisingly, the older a person is the more they would have to save. Read more »

Alan Collins

This article by Alan Collins was first published in the Herald Scotland on the 4th of January 2013.

All the fanfare surrounding the Government’s auto-enrolment pension legislation when phase one was launched last October may have understandably caused some worry and consternation amongst the UK’s SME community.

Given the multi-phased stages of the new legislation, the leaders of small to mid-sized firms – which make up the backbone of the UK economy – would be forgiven for feeling a bit out of touch when the likes of Theo Paphitis and other high profile figures proclaimed ‘I’m in’ on a series of Government TV adverts aired in advance of the launch.  In actual fact, there is still a long way to go before auto-enrolment will impact on most SMEs. Read more »

Chris Roberts

Recent articles confirming ATP’s attempt to launch a NEST comparative scheme led me to wonder what Federer, Djokovic or our own Andy Murray had to offer workplace pension reform……

On closer inspection (googling “ATP” and ignoring any tennis references) I was led first of all to a promising website called All Tomorrow’s Parties promoting concerts, and other hip cultural events featuring the likes of Portishead and Mogwai, but sadly, with nothing much to say about pensions. Further investigation (adding “pension” to my “ATP” google search) led to the Danish national pension agency, which made a little more sense. 

I must admit when I think of Denmark it brings to mind bacon, the little mermaid, the eponymous pastries and more bacon. Which probably says more about me than it does about Denmark. The Danish ATP (or Arbejdsmarkedet Tillaegspension, as they say in Denmark) runs one of Europe’s largest pension schemes. In 2009 ATP pulled out of the running to provide administration services to what were then described as personal accounts. At the time PADA suggested that providing such services did not fit with ATP’s commercial model. Two years later things have clearly changed.  Read more »

Alan Collins

I’ve  never had an “ology”, but always fancied one. So I thought I’d have a go at futurology. Futurology is the study of possible, probable, or preferable futures for society and the worldviews that underlie them. There is a debate as to whether this discipline is an art or a science, or just a bit of fun indulged in by the weekend supplements on the Sunday closest to New Year’s Eve.

Obviously there is a spectrum in futurology.  I’d tend not to invest too much faith in those futurologists who cite their predictions as being the result of channeling Thrag, a 9,000 year old lizard-being from the planet Zoltar. But some approaches have a slightly more reputable pedigree , and are essentially the statistical collection and analysis of past and present trends with the goal of accurately extrapolating future trends. When they put it like that, it almost sounds like being an actuary!

So if I apply my ology to the pensions field what might I divine?

Well, what about past and current trends? Recently, Scottish Widows published their seventh annual report on the state of retirement savings across the nation.

The most damning statistic is not a new one – 20% of those surveyed are saving nothing for retirement in 2011, a slight improvement from 21% in 2010.  Also, the survey concludes that just over half of those surveyed are assessed as making enough provision for their retirement.  Somewhat worryingly, the threshold for qualifying as being adequately prepared for retirement, according to the study  is setting aside 12% of pay (including employer contributions) – I don’t think there would be many in the actuarial or financial advisory sector that would conclude that 12% of pay is enough.

The UK does not seem to fare well in retirement savings stakes versus other developed economies – the survey refers to a recent Chartered Insurance Institute report which estimated that the UK Retirement savings gap at £9 trillion.

There is some encouragement to be had relating to the impact of auto enrolment and NEST, with only 11% of those surveyed saying they will opt out rather than be automatically enrolled, so the future trend may be for more retirement saving but at a level, 8% in aggregate, that is unlikely to make a real difference to most people.

A proposal which has generally been welcomed in pension circles is the introduction of a flat rate state pension of £140 per week (in current terms).  I see one of the main positives of this proposal as being that additional savings would be rewarded and not offset against some state benefits as is currently the case.
Indeed, I attended the Actuarial Profession’s annual conference last week and Pensions Minister Steve Webb stated this aspect as a significant advantage of the flat rate pension system.  However, the survey suggests that there is a significant communications and financial education  challenge in convincing the wider public that the flat rate pension system will reward savings, as only 18% of those surveyed stated that the system would lead to them saving more.

The survey also details a high level of expectation on employers to engage in the retirement savings process.  70% believe an employer should provide access to and contribute to a pension arrangement.  More surprisingly, some 40% believe that employers offering a pension scheme should offer a full advice service.  My experience is that the number of employers offering such a service would be significantly less than this level.

Together with moves by the Pensions Regulator to encourage employer engagement in Defined Contribution arrangements and facilitate access for staff to open market options at retirement, it should now be an important consideration for employers to effectively communicate the benefits of retirement savings and also assist with retirement planning for members approaching retirement age.

Finally, to get another angle on the public view on retirement savings I consulted the comments section of the BBC website’s reporting of this story.  At last check, the story had attracted a staggering 327 comments, which at least shows that the public seems to be engaged on the topic of pensions at the moment.  However, comments such as,

“Saving – might as well spend it.”
“most people distrust pensions”
“Don’t bother with pensions – they are unsafe and unprotected.”,

illustrate that trust and belief in retirement savings is still far short of the level required to encourage the general public to engage in the process.  That, for me, is the biggest challenge facing the industry, and indeed our wider society, and a challenge which seems to be getting harder rather than easier over recent years. Financial education needs to be a priority for the UK, and our industry is well placed to play its part, but the Government also has a leading role to play.

So what sort of future do we want?  A future where all our citizens have a meaningful income and standard of living in retirement? Or, in extremis, a dystopian, ageist future in which the state provides for retirement but can only do so by permanently “retiring” everyone reaching a particular age?  I’m afraid, based on the current evidence that, unless we can change society’s behaviour radically, our future is more likely to resemble Logan’s Run than Utopia.

John Griffin

1 October 2012 may seem like a long way away, but it is a date that should be etched in the calendar of employers of all sizes. From that date, employers will begin to be obliged to automatically enrol their eligible workers into a workplace pension arrangement.

The first employers to be affected will be the largest employers (those with at least 120,00 workers) but this will relatively quickly taper down to medium-sized employers so that, by October 2013, employers with only 800 workers will be obliged to comply with the new requirements.

Some of the issues employers will need to face include:

  • Associated increased costs
  • The position of existing pension arrangements or schemes
  • Views on different arrangements for different grades of workers
  • Comparing their overall remuneration package with that of competitors
  • The views of owners or shareholders

Combined with the reduction of the Annual Allowance from £255,000 to £50,000 from 6 April 2011, this makes it vital for all employers to review their pension arrangements.

Any employers ready to meet this challenge should contact Spence & Partners, whose consultants are highly qualified and proficient at providing advice and solutions to all pensions-related challenges that employers may face.  Working with the employer, we will be able to construct a plan which is fit for purpose and will ensure compliance with the new requirements.

In the first instance, you should contact Alan Collins, head of employer advisory services on 0141 331 9970 or email

Greig McGuinness

In the past couple of weeks “The NEST phrasebook” has been released to assist with the clear communication of pension issues and encourage public engagement in retirement savings by improving levels of understanding of the products on offer.

Far be it for me to question how public funds are spent or the need to make pension literature more user friendly. In fact, one of our aims, especially in our blogs, is to demystify the world of pensions. However, there are a few clear rules:

Firstly: the interpreter must understand the subject in the first place.

Secondly: the layman should be given some credit and not patronise him.

Thirdly: the cure should not be worse than the ailment.

Does changing the term “trivial commutation” to “Taking your retirement pot as cash” suggest an understanding of the finer details or the audience? The additional explanation is unlikely to be remembered and suggests that the only way to fully commute a benefit is on the grounds of triviality.

Does the layman need to be told that a “Fund” is usually made up of shares and other financial products? If so does this explanation tell him anything more? And would you expect the same layman to know what a gilt is? That’s a term that NEST thinks needs no further explanation.

Now whilst I support the effort and can see what is being attempted in the previous examples I see no reason why an employee should be redefined as a worker, auto-enrol should become automatically enrol, pension commencement lump sum should be re-named “cash lump sum taken when you purchase a retirement income” and probably most shocking the term pension should no longer be simple enough. A pension now needs to be described as “the regular income you receive when you open your retirement pot”.

Also, we must not forget to remove any potential age discrimination by referring to “on/approaching retirement” rather than “in later life”. Apart from the fact that people tend to retire in later life the very definition of retirement is much more fluid and therefore the term itself is quite complicated. Does retirement mean stopping work, reaching a particular age or, as should be the case, the time at which you “open your retirement pot” regardless of age or employment status? NEST either does not know the answer or thinks that everyone else does.

It’s not all bad; the phrasebook does include some positive suggestions. It is probably a good first step but needs to go further and should have benefitted from some further input from those within the pensions industry who specialise in explaining how retirement benefits work.

Unfortunately, pensions (not least because of the regulatory framework) are complicated and whilst any attempt by government to simplify things should be welcomed, a glossary of common terms, no matter how simple, is not the answer. Until we have a truly simplified regulatory system, which will probably be preceded by porcine avionics, appropriate professional advice is a must for both employers and employees (sorry, workers), NEST and auto-enrolment are on their way and responsible employers should seek advice on how they will be affected before it is too late.

Valerie Hartley

Recently I read with some interest figures showing that different generations of women are witnessing an altering pension’s landscape, with many of today’s young adults not saving enough for their retirement. Tell us something we don’t know!  As most of us do know, the earlier they start, the better off they could be. However, by turning their backs on saving for a pension young people are increasing their chances of facing poverty in old age.Official figures also show that the number of women aged 22 to 29 in the UK who are signing up for a workplace pension has fallen for four years in a row, marking the most rapid decline of any age group.

It is apparent that people are often waiting for decades after starting work before they consider how to pay for retirement. It has since emerged that experts are now warning that a new scheme to ensure employees get into the savings habit will be insufficient and offer workers a false sense of security.

Latest figures from the Office for National Statistics show that currently more than half of the UK’s single pensioners have a pension income of less than £10,000 per annum, and the UK has an ageing population. By 2034, 23% of the population is projected to be aged 65 and over, up from 15% in 1984. An estimated eight million workers have no pension provision and face having to rely on the state pension and benefits to pay for 20 years or so of retirement.

The Survey shows that less than 40% of men and women aged 22 to 29 contributing to a scheme offered by their employer.  These workers are missing out on a pension provision that is generally the most generous of pension policies, compared to a personal pension plan where there is often no employer contribution.

For today’s 20-somethings, pensions have fallen down the priority list as they face up to more pressing financial concerns. In the past the pension system assumed that women did not need a pension, they needed a husband!!  One woman in particular was quoted in the Press as saying, ‘I am struggling to pay off my debt and so at the moment every penny of my monthly salary is needed for rent, living and debt.  After my debts are cleared I think the focus at my age is to start saving to invest in property. This seems more relevant and urgent than a pension at this point in my life.

Is it the case that the only people in their 20s who think about pensions are those who sell them?  Pensions Minister Steve Webb expressed his concern that complications, as well as poor awareness of the pension system, has turned many young people away from thinking about how they will fund for old age. Most young people starting in a job do not get around to thinking about pensions for years because when young you think you will live forever and a pension is something for your granny. Other people assume that their home will be their pension.

No-one is expecting 20-somethings to become pension geeks, but what we do want is to demystify it, make it simple and ask the question, what sort of standard of living do you want when you are old?.  A new system that will automatically enrol people into a workplace pension scheme will get young people into a savings habit and it will also tackle the dividing line between pension provisions depending on people’s choice of career. At present, workplace pension scheme take-up is more than 90% in public sector jobs such as public administration, defence and social security, compared with just 6% in shorter-term accommodation and catering work.

Some people argue that an entire change of culture is needed to make pensions affordable.  We are all expected to live longer, not such a great prospect if we are all going to be poorer. It doesn’t need to be that way but people do need to rethink the way they approach later life. Perhaps this could mean working part-time during pension years? Who knows, but one thing for sure is that without adequate savings many people may no longer have the choice other than to stay at work.

Alan Collins

Following the recommendations of the Pensions Commission in 2006, the previous Government proposed the introduction of the National Employment Savings Trust (NEST), to address the lack of pension provision for employees who do not have access to workplace pension schemes.

From the perspective of employers, a major issue surrounding NEST is the likely cost of implementing the scheme, especially the associated administrative costs. An independent review has been carried out into the proposals for NEST – Making Auto Enrolment Work, which seeks to address the question as to whether the cost to employers imposed by NEST is necessary and proportionate.

Prior to the review, the proposed structure for NEST had the following key features:

  • Every business with at least one eligible employee must comply with the regulations.
  • An eligible employee is one who earns enough to pay National Insurance contributions.
  • All eligible employees must be enrolled immediately in the workplace pension scheme.
  • Employees are to be enrolled automatically, without need for application forms
  • Contributions are calculated from qualifying earnings (earnings in excess of the National Insurance Primary Threshold, currently £5,035 per annum, which include variable items such as overtime payments and bonuses).
  • Will be introduced in stages, commencing with employees of large companies, commencing in October 2012.
  • Minimum employer contributions commence at 1% of qualifying earnings from 2012 rising to 3% by 2017.
  • Minimum employee contributions commence at 1% of qualifying earnings from 2012 rising to 5% by 2017.

After consultation with business and the pensions industry, the authors of the report made the following key recommendations (which the new Government has welcomed).

  • Every business with at least one eligible employee must still comply with the regulations.
  • Contribution levels and phasing of contributions remain unchanged.
  • The earnings threshold at which an employee is automatically enrolled is increased to be equal to the personal allowance for income tax (currently £7,475 per annum). The threshold at which contributions are payable remains the National Insurance primary threshold.
  • An optional waiting period of three months should be introduced before an eligible employee is automatically enrolled. However, employees may choose to opt in at any time, and the company would then need to pay contributions.
  • The system by which employers can certify that their defined contribution schemes meet the required contribution levels should be simplified.
  • Further de-regulation measures should be introduced to ease the administrative burden on employers.
  • The current cap on contributions (£3,600 per annum) and ban on transfers in and out of NEST is to be reviewed in 2017.

The impact of the recommendations is to reduce the number of eligible employees by around 1 million, which will reduce the costs associated with NEST, especially for companies with a high proportion of low-paid workers. Further simplification and cost reduction is achieved by simplifying the certification process for businesses with current defined contribution schemes and by reducing the number of short-term employees who would be automatically enrolled. Clearly, the proposals surrounding NEST will continue to cause displeasure amongst small employers. There also continues to be a risk that contributions are levelled down in existing schemes to match the minimum requirements of NEST.

Employees may also choose to opt-out of their employer’s scheme. However, employers are not permitted to induce employees to opt out of pension schemes, and a company which did so would be fined from £1,000 to £5,000 (depending on the number of employees).

Please contact us for further information or visit the NEST website.

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