Employees with pension savings in NEST will be provided with competitive quotes from a five provider panel which accepts sums as low as £1,500.
NEST prepares for 2012
NEST is a key element in a major reform to workplace pensions which begins in 2012. Between October 2012 and September 2016, employers will be required to provide a pension scheme for their workplace and ‘auto-enrol’ all employees who are over 22 and earn more than £7,475.
Firms which don’t already have ‘qualifying schemes’ will be able to enrol employees in the National Employment Savings Trust (NEST). It is expected that around 4m people will join NEST, although not all will stay in the scheme as it is possible to opt out after joining.
If you’re a Which? member and have questions about how NEST might affect your plans to save for retirement, why not sign up to take part in our live pensions Q&A on Friday 1 July.
Escalating pension contributions
From October 2012 to September 2016 the minimum contribution rate under auto-enrolment will be 2% of your ‘qualifying earnings’ (between £7,475 and £33,540), of which 1% must be paid by your employer.
From October 2016 to September 2017 this rises to 5%, of which your employer must pay 2%.
In October 2017 the overall rate climbs to 8%, of which at least 3% must be made by your employer. Employers can pay more, of course, as can employees.The upper limit for contributions is £4,200 a year.
NEST investments and charges
Money paid into NEST will be held in an individual pension pot, which employees can take with them if they change jobs. The money is invested in various funds, designed to produce growth in the early years and more security as you approach retirement. Annual management charges (AMC) are low, at 0.3%, although there is also an initial charge of 1.8%.
NEST annuity choices
In common with other money purchase or defined contribution (DC) pension schemes, NEST savers accumulate a pension pot that they use to secure retirement income by buying an annuity. Rather than offer a default annuity from a single provider, NEST has appointed a panel of five firms: Canada Life, Just Retirement, Legal & General, Partnership and Reliance Mutual.
NEST members will be able to compare quotes from each of these. They can also cast their net wider and exercise the open market option (OMO), although this is harder for those with small pension pots, who often can’t afford professional advice.
Which? pension expert Ian Robinson said: ‘The NEST panel is a welcome development. It offers less choice than a whole of market search but should deliver good outcomes to most members. It’s noteworthy that two leading providers of enhanced annuities are included. This should make sure that those with poor health don’t miss out on better rates.’
Which? Money – Live pensions Q&A
Are you baffled by state pensions or Sipps? Are you worried about being able save enough for your retirement? Whatever your pension questions, Which? experts will be on hand to answer them during our live Q&A on Friday 1 July.
Sign up now to take part in this exclusive event for members at www.which.co.uk/pensionsqanda, or log on at 12.30pm on the day to get involved.