NEST Pensions reform 2012

The introduction of the National Employment Savings Trust (NEST) has been in the press recently following a government review of the scheme. The headline that employers will have to start making pension contributions for all of their employees from 2012 are somewhat misleading as the majority of employers will not need to comply with the rules from that date. The start date for the roll out of the scheme is October 2012 but this will impact on employers with 120,000 employees or more. For those with a more modest workforce the start date varies, for example those with less than 500 employees the date is 1 January 2014 and for those with less than 50 employees the earliest start date is 1 March 2014.

Employees eligible for automatic enrolment will be:

  • those who aren't already active members of a qualifying scheme
  • are aged at least 22 years and the State Pension age and
  • earn over £7,475 gross a year.

The qualifying scheme may be the existing employer pension scheme if it meets certain conditions, or if an employer does not have a qualifying scheme they will have to set one up or use a NEST pension scheme.

Minimum contributions levels for qualifying schemes

Minimum Contribution

Employee Pays

Tax Relief

Minimum Employer Contribution





Employees will be able to opt out of the scheme if they so wish. However for those employees within the scheme it is expected that the employer will have to contribute at least 3% of their ‘qualifying' earnings. These earnings are their basic salary plus commissions, bonuses and overtime between £5,035 and £33,540 a year (in 2006/07 terms but to be uprated).

Contribution levels will be phased in over a period of time

According to the DWP website contributions will be phased in:

‘The minimum contribution levels will be phased in to help both employers and individuals adjust gradually to the additional costs of the reforms.

For Defined Contribution schemes, the minimum contribution requirements are that:

  • during the staging period (October 2012 to September 2016), the total contribution level (including tax relief) will be 2% with a minimum of 1% coming from the employer
  • for a year following the end of staging (from October 2016 to September 2017), the total contribution level will be 5% with a minimum of 2% coming from the employer
  • from October 2017 the total contribution level, will be 8% with a minimum of 3% coming from the employer.

The gradual phasing of contributions is not possible for Defined Benefit and Hybrid schemes. Instead, employers providing these types of scheme will be able to delay their automatic enrolment duty for prescribed jobholders until after the staging period (October 2016). These jobholders will be able to opt into the scheme if they wish during this transitional period.'

The rules are in their infancy and further detail and guidance is expected over the coming months. We will keep you informed of developments.

If you would like more details of the scheme please do get in touch.

Internet links: Business link website DWP website Employer start dates

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