- National Employment Savings Trust
The National Employment Savings Trust (or NEST) is a pension system for all workers in the United Kingdom that do not have access to a company pension provided by their employer. It will be a universal, defined contribution scheme, accumulating a fund during a worker's life to purchase an annuity at retirement. Proposed by the Labour Government in a May 2006 White Paper, it was instituted through the Pensions Act 2008, and is due to commence operation in October 2012. The principal change made in the 2008 Act was to automatically enroll all employees into an occupational pension (unless people want to opt out) and where employers do not already have a scheme, people's money will be saved in NEST.
NEST is a not-for-profit organisation and managed by trustees. Any private sector employee aged 22 and below state pension age, not contributing to a pension, with earnings over £5,732 (in 2010 prices) will be eligible for enrolment. Government estimates put participation in NEST between 4 and 7 million people.
NEST will act as a public service provider, allowing any employer that wishes to use it. It is being designed to target low to middle income earners not currently saving into any pension plan. Simplicity and low charges will be a key element of the scheme - a 2% initial charge on contributions plus 0.3% AMC. There will also be a cap of £3,600 pa (at 2005/06 prices) on contributions initially, together with a ban on transfers-in of existing individuals' pension funds for at least the first five years operation of the scheme.
All enrolled individuals will receive Minimum employer contributions in addition to their own plus tax relief to a total of at least 6 percent (rising to 8) made up of; employer (1% rising to 3%), employee (4%) and tax relief (1%) on a band of earnings between £5,035 pa and £33,540 pa (at 2005 prices). Employers must contribute at least 1 percent initially, rising finally to 3 percent - but can contribute more.
NEST - originally to be known as 'Personal Accounts' was one of the recommendations of Second Report of the Pensions Commission National Pensions Savings Scheme (2006) under the chairmanship of Adair Turner. The Commission concluded that, on present trends, many people would face inadequate pensions and recommended introducing automatic enrolment of employees into a workplace pension (giving employees the right to opt-out) with mandatory minimum employer contributions.
The Pensions Act 2007 established a transitional body, the Personal Accounts Delivery Authority (PADA) to oversee the implementation and launch of Personal Accounts. PADA consulted on various aspects of the final scheme before handing these responsibilities to a trustee body, the NEST Corporation. The current chief executive is Tim Jones. More information on NEST is available at their website.
A keen topic of debate has been whether modest savers will benefit from joining NEST due to the prevalence of means-tested benefits. In order that legislation creating the scheme could be passed without waiting for the issue of means testing to be resolved, the government promised to undertake a comprehensive study of which savers could be at risk of losing out in this way.
The results of the study were published in February 2009 in a DWP research report. The headline findings were that despite means-tested benefits; over 95% of savers in NEST can expect an increase in pension income greater than the cost of their contributions, and that the large majority of savers can expect to get back more than twice what they put in. However the report also found that those who would lose out were not readily identifiable, making advice to individuals difficult.
Many independent experts dispute this conclusion. Matthew Wakefield, senior research economist at the Institute for Fiscal Studies and one of the authors of the a report said “In 2005 half of employees not contributing to a private pension earned less than £14,000, and more than half had no net savings. Getting such individuals into pension saving might be seen as a success of the policy, but any increase in pension saving is, at least in absolute terms, likely to be small. While many of these individuals have little scope to finance new pension saving by reshuffling existing assets, some could pay down existing debts less quickly, which would still mean that new pension saving was not new saving overall."
- http://www.dwp.gov.uk/docs/pensionsbillimpactassessment-final2.pdf - this is the impact assessment released in December 2007 for the Pension Bill 2008. It provides a complete appraisal of the reforms. there are also fact sheets on individuals and employer reactions which have implications for the UK pension industry.
- http://research.dwp.gov.uk/asd/asd5/rports2009-2010/rrep558.pdf - Research document 4
- http://www.ifs.org.uk/publications/4386 - IFS power point presentation discussing the adequacy of these reforms
- http://www.ifs.org.uk/pr/personal_accounts.pdf - IFS press release
- http://news.bbc.co.uk/1/hi/business/8101097.stm - BBC - Personal account benefit 'small'
- http://www.retirementmadesimpler.org/Library/The%20Power%20of%20Suggestion-%20Inertia%20in%20401(k).pdf - THE POWER OF SUGGESTION: INERTIA IN 401(k)PARTICIPATION AND SAVINGS BEHAVIOR* - BRIGITTE C. MADRIAN AND DENNIS F. SHEA
- NEST Corporation official website
- Department for Work and Pensions - UK Government website containing details of the public consultation on the formation of Personal Accounts.[dead link]
- Pensions Policy Institute - publishing independent non-political research into UK pensions policy.
- Association of Member-Directed Pension Schemes (AMPS) - The principal body for discussing changes involving self administered pension schemes
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