Personal Accounts
Encyclopedia
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.
. 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.
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.
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."
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
system for all workers in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
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
Life annuity
A life annuity is a financial contract in the form of an insurance product according to which a seller — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer in exchange for the immediate payment of a lump sum or a series...
at retirement. Proposed by the Labour Government in a May 2006 White Paper
White paper
A white paper is an authoritative report or guide that helps solve a problem. White papers are used to educate readers and help people make decisions, and are often requested and used in politics, policy, business, and technical fields. In commercial use, the term has also come to refer to...
, it was instituted through the Pensions Act 2008
Pensions Act 2008
The Pensions Act 2008 is an Act of the Parliament of the United Kingdom. The principal change brought about by the Act is that all workers will have to opt out of an occupational pension plan of their employer, rather than opt in...
, 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.
Overview
NEST is a not-for-profit organisation and managed by trusteesEnglish trusts law
English trusts law is the original and foundational law of trusts in the world, and a unique contribution of English law to the legal system. Trusts are part of the law of property, and arise where one person gives assets English trusts law is the original and foundational law of trusts in the...
. 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
Universal service
Universal service is an economic, legal and business term used mostly in regulated industries, referring to the practice of providing a baseline level of services to every resident of a country...
, 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
Minimum employer contributions
A minimum employer contribution is a mandatory pension contribution which is made compulsory by the Pensions Act 2008 in the UK which comes into force in 2012. It will be set at 3% of banded earnings....
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.
Establishment
NEST - originally to be known as 'Personal Accounts' was one of the recommendations of Second Report of the Pensions CommissionPensions Commission
The Pensions Commission was a non-departmental public body in the United Kingdom, reporting to the Secretary of State for Work and Pensions, set up to keep under review the regime for UK private pensions and long-term savings....
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
Pensions Act 2007
The Pensions Act 2007 is an Act of the Parliament of the United Kingdom. It incorporated the main findings of the all-party Pensions Commission in 2006 as set out in the white paper Security in retirement: towards a new pension system published in May 2006.The key provisions were:#Reduction of the...
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.
Controversy
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
Department for Work and Pensions
The Department for Work and Pensions is the largest government department in the United Kingdom, created on June 8, 2001 from the merger of the employment part of the Department for Education and Employment and the Department of Social Security and headed by the Secretary of State for Work and...
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."
See also
- Pensions in the United Kingdom
- Canada Pension PlanCanada Pension PlanThe Canada Pension Plan is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's public retirement income system, the other component being Old Age Security...
- UK labour law
- Basic state pensionBasic state pensionThe Basic State Pension , is part of the United Kingdom Government pension arrangement, alongside the Graduated Retirement Benefit and State Earnings-Related Pension Scheme .- Background :...
- KiwiSaverKiwiSaverThe KiwiSaver scheme is a New Zealand voluntary long-term savings scheme which came into operation from Monday, 2 July 2007. The main purpose of the KiwiSaver fund is for retirement savings....
External links
- NEST Corporation official website
- Department for Work and Pensions - UK Government website containing details of the public consultation on the formation of Personal Accounts.
- 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