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NEST latest developments and how they affect pension planning for ...

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NEST latest developments and how they affect pension planning for ...

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    1. NEST latest developments and how they affect pension planning for SMEs now Chair: Colin Hanlon Regional Sales Director, Prudential Adrian Boulding Pensions Strategy Director, Legal & General

    3. Auto-enrolment is coming Firm commitment in the Conservative / LibDem Coalition Document Start date is October 2012 Or even earlier for large firms? The demographic importance of 2012 NEST can be ready Watch the 20th October Spending Review

    4. Will small firms be included? YES To avoid an impediment to company growth Employee rights are independent of employer size NEST will make pensions a pleasant experience for even the smallest firm NO It seems ludicrous to auto-enrol the nation’s nannies and gardeners TPR’s compliance costs very high for small firms (We don’t do French legislation here) Without NEST, the existing Stakeholder industry can only reach down to firms of about 20 lives

    5. What other easements have been suggested? Leaving out the oldest and youngest workers Leaving out those on the lowest earnings Giving employers flexibility around their start date Waiting Periods Are pensions a tax or are they a discretionary contribution from a munificent employer?

    6. How about Basic Earnings? Many existing schemes would like to use basic earnings All basic earnings, without the Ł5000 offset The vast majority of workers would benefit But a few will lose out ABI, NAPF and CBI have called for a simple form of certification Allowing good schemes to continue using basic earnings

    7. Independent Review of Auto-Enrolment Paul Johnson, David Yeandle and Adrian Boulding were commissioned in June to think about these issues Report to Minister of State of Pensions at end of September Government must decide for the Spending Review There is a Parliamentary Bill scheduled in case legislation needs to be altered

    8. NEST charges Members of NEST will pay 0.3% AMC, plus 2% of each contribution This is roughly equal to a 0.5% AMC When an employee pays in Ł50 Their statement will show they have Ł49 invested Our focus groups say… NEST does not meet the Stakeholder charge cap

    9. Effect of Auto-Enrolment Government Prediction 55% to 80% take up, with a 75% central estimate NAPF Survey of actual schemes Auto-enrolment 89% take up Voluntary joining 42% take up L&G Survey of General Public 54% will stay in 46% will opt out New Zealand Kiwi-Saver 63% take up with auto-enrolment

    10. Mastertrusts and Early Leavers When an employee leaves in the first two years – Stakeholder Pensions or GPP leave him with a small paid up pension NEST suspends his account until he joins another NEST affiliated employer Occupational Pension Schemes can offer a refund of contributions Employers with high turnover may want occupational schemes Mastertrusts offer the rules of an occupational scheme, but with the freedom from responsibility of a GPP

    11. Default Investment Choice Over 90% of employees are expected to end up in the default fund The employer does not have to choose the default fund The scheme provider or trustees will do that In the long run, how the money is invested is more important than how much is paid in Suitability of default fund should be a key factor when you are recommending a scheme to an employer

    12. Will employers pay more than the minimum? They need to 3% of earnings above Ł5000 is not enough! And we don’t reach that level until 2017

    13. The Golden Rule of Fringe Benefits The cost to the employer of providing the benefit Must be less than The perceived value of the benefit in the hands of the employees

    14. Pensions Quality Mark will help people to see that they are in a good scheme Over 100,000 workers are now saving in employer pensions with the quality mark

    15. National Insurance - a tax on jobs, not a tax on pensions Cost to employer of putting Ł1 in an employee’s pension is just Ł1 Cost to employer of putting Ł1 in an employee’s take home pay is Ł1.67 Assuming a basic rate taxpayer, 2011 rates of NI

    16. Conclusions Auto-enrolment is coming in 2012 We should know all the details by end October 2010 Employers do not need your help to comply with the legislation NEST and TPR plan to make it easy for them But they do need your help to get any sort of business return on the pension contributions they will have to pay

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