Getting Pensioned Off

The abolition of the compulsory retirement age is a hot topic at present, and we will be writing again soon on that subject. On a related issue, it is also worth bearing in mind the proposed changes to the Stakeholder Pension system. At present if you employ five or more staff, you are obliged to have a stakeholder pension scheme in place to offer staff. The employer does not have to make any contributions to the stakeholder pension scheme however, and take-up has consequently been low.


However from October 2012 the new National Employment Savings Trust (NEST) scheme will be introduced in stages. NEST will be a national, low charge, workplace pension scheme any employer can use to comply with their duties imposed by the new pension regulations and has apparently been set up to help millions of people who currently don’t have access to a workplace pension, and who presumably don’t yet have a nest egg (apologies for the weak pun).

NEST will:

• Be a trust-based occupational pension scheme.
• Be run by NEST Corporation which will have a legal duty to act in the interests of scheme members.
• Be one of the qualifying pension schemes employers can use to fulfil their new duties under the pension reforms.
• Have online access & be easy to administer.
• Allow employers to hand over their administration to a third party if they wish.
• Belong to the individual, meaning employers will not have to look after the pots of ex-workers. This also means several different employers can contribute to the same member’s pot over their working life.

The big difference however is that minimum employer contributions will be required. Minimum contributions will be phased in starting from 2012, as follows:

• Oct 2012 to Sep 2016: 1% by employers and 1% by employees (including tax relief)
• Oct 2016 to Sep 2017: 2% by employers and 3% by employees (including tax relief)
• Oct 2017 onwards: 3% by employers and 5% by employees (including tax relief)

For many employers that don’t currently provide pension schemes, this will be a big and unwelcome additional cost, and which they may recoup by not making incremental pay increases in those years. For more information please see http://www.nestfacts.co.uk/. However the more people that get adequate pension cover in place, the more that will actually be in a position to retire when they reach the age of 65.

James Carmody is a solicitor based in Central London specialising in Employment Law.
http://www.reculversolicitors.co.uk/
http://www.kent-employment-solicitors.co.uk/