Employment Law Update (January 2010)
NEST – egg pensions on the way
Further details have just been announced on the progress of the
Government's workplace pension proposals – as well as a new name
for the Government-backed scheme.
Under the Pensions Act 2008, employers will soon be required by
law to provide, and to contribute to, pension schemes for their
employees. To help employers meet this requirement, the Government
has set up the Personal Accounts Delivery Authority, which will
provide an appropriate scheme for employers who don't make
alternative arrangements or who don't have a suitable pension
scheme already in place.
The Government-backed scheme has now been named the National
Employment Savings Trust – NEST for short, and it is hoped the
scheme and the easy-to-remember name will encourage employees to
save a "nest-egg" for their retirement.
Pension reform will now be introduced in stages, with the first
wave starting in 2012 and initially only applying to employers with
120,000 staff or more. The requirement for employers to provide,
and contribute to, employee pensions will then be phased in over
four years until 2016, when it will apply to employers with fewer
than 50 employees.
Who will contribute what?
The proposals are for employers, employees, and the Government
to share the burden of paying into the pension scheme, with the
following split:
- Employees will contribute 4% of pay
- Employers will contribute 3% of pay
- Government will contribute 1% of pay
However, the contribution levels will also be phased in, and
employers will not be required to contribute the full 3% until
2017.
Will it actually happen?
Although the general election, which must be held by summer
2010, may result in a change of Government, improvement of
long-term pension provision is a matter on which there is
widespread political agreement – and the law has already been
enacted – so it is unlikely that any incoming Government would
change the plans substantially.
What you should do
- Employers have plenty of time to prepare for the new pensions
legislation.
- If you have not done so already, you should plan to put a
system in place and consider how your business could find ways of
paying the contributions.
- Employers will be able to either use a qualifying workplace
pension scheme or the NEST scheme to meet their obligations under
the law.
- Further information is available on the Personal Accounts
Delivery Authority's website: http://www.padeliveryauthority.org.uk/