Alternatives to NEST
Fiona Karlin, Director of Momentum Partners Financial Services Limited, considers some of the choices facing employers as they implement the new auto-enrolment regime
B
y now everyone involved in any aspect of payroll or human
resources (HR) knows that automatic enrolment is compulsory. As the television adverts keep reminding us: “We’re all in.” Employers are either already obliged to automatically enrol certain workers, known as eligible jobholders, into a pension scheme that meets the specific conditions to be an ‘automatic enrolment scheme’ or they will be obliged to auto-enrol those workers once the employer’s staging date is reached. The exception to this is where the eligible job holder is already an active member of a qualifying scheme. Auto-enrolment has been on the minds of large employers like Tesco for quite some time. However, this year and next will bring auto-enrolment down to grass roots level, bringing many small and medium-sized enterprise (SME) employers into the ambit of the new regime. Employers with between 50 and 249 people in their PAYE scheme (as at 1 April 2012) become subject to the auto enrolment regime at various dates between 1 April 2014 and 1 April 2015 and even smaller employers will have their staging dates between 2015 and 2017.
But what are we all in? All this talk of auto-enrolment begs a serious question, however. Just as The
30 PayrollProfessional
O’Jays (or for younger readers, Heavy D) asked “Now that we’ve found love, what are we going to do with it?”, employers need to ask themselves not only how and when to auto-enrol, but also what pension scheme would be the best one in which to auto-enrol their workers.
Larger employers may well already have a pension scheme (or schemes), in which case the first question will clearly be “Is my existing scheme fit for purpose, i.e. does it meet the criteria for an ‘automatic enrolment scheme’?”
Smaller employers are more likely to have no existing scheme and to assume, because auto- enrolment is frequently mentioned in the same breath as the National Employment Savings Trust (NEST) scheme, that they are required to enrol their employees in the NEST scheme.
I thought we all had to be in NEST? This is not the case. There is no obligation to use the NEST scheme and, that being the case, employers should evaluate the
...EMPLOYERS SHOULD EVALUATE THE ALTERNATIVES TO NEST
alternatives to NEST. Some may find NEST is right for them. Others may find an alternative which suits them better. In planning for auto-enrolment, employers should factor in sufficient time to consider their pension scheme options as well as preparing for the task of auto-enrolment. NEST is an independent defined contribution (DC) pension scheme designed to offer low to moderate earners a simple, low-cost way to save for retirement.
Run by a not-for-profit trustee corporation, NEST is legally obliged to accept all employers who wish to use it to fulfil their automatic enrolment obligations. Key features include:
l NEST is free of charge for employers to use. l NEST charges for members have been set at a 0.3% annual management charge and an initial 1.8% charge on contributions. l There is a limited choice of investment funds and a default fund for those who do not make a choice. The following points may be useful:
l NEST charges are higher than some alternatives (and obviously lower than others). Even where the alternative is more expensive, it may offer better value for a particular employer. l Lower contribution caps apply to NEST
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