In the UK, we are now living longer and having fewer children. As a result, workplace pension schemes have come under increasing pressure, as they have to cover retirees for longer on less income. At the same time, people just don't seem to be saving enough for their own retirement so the Government is getting worried about its own ability to provide state payouts.
Consequently, the Government has decided it is time to try and persuade you to start saving towards a private pension. The latest measure, the ‘National Employment Savings Trust' (NEST), is set for implementation from 2012 and designed to encourage both a greater level of saving generally and also open up pension saving to individuals who do not currently have a workplace scheme.
Therefore, from 2012, all eligible workers who are not already in a workplace scheme will be automatically enrolled either into their employer’s scheme or into NEST. You could opt out from this if you want to but it is your responsibility to do so and you would then miss out on some of the incentives, which the Government has attached to them.
NEST is aimed primarily at low-to-moderate income earners aged from 22 right up to state-pension age. As an employee, you must contribute a minimum of 4% of your earnings (subject to limits), meaning your take-home pay will reduce. However, as an incentive, you will receive a corresponding 3% contribution from your employer and a further 1% in tax relief from the Government, thereby doubling your contribution.
There are still some unanswered questions about how NEST will ultimately look. It is intended to be simple, inexpensive and run in the best interests of members; however, the structure so far appears quite complicated and information is relatively scarce.
However, a choice of branded pension savings accounts will be available alongside a default account for those who do not wish to make an investment choice. Indeed, the Pensions Act 2008 obliges all employers to enrol eligible employees into a good-quality workplace pension scheme, so NEST could provide a practical solution for both you and your employer. Whether they will be the most suitable pension arrangement for you as an individual depends on your own personal circumstances, but it is worth investigating the options and getting ready for the opportunities which lie ahead.
