The National Employment Savings Trust (Nest) will go ahead.
The Comprehensive Spending Review has confirmed that the Department for Work and Pensions’ (DWP) settlement will fund the introduction of auto-enrolment from 2012 and the establishment of Nest, to help individuals save for their retirement and encourage high quality pension provision by employers.
Tim Jones, chief executive of the Nest Corporation, said: “We are very pleased that Nest will play its part in delivering automatic enrolment and help millions of people save for their retirement.
“The work we have been doing over the summer has ensured that Nest is now really taking shape and will be ready to launch in low volumes in 2011.
“We believe Nest will provide a straightforward solution for many employers and we look forward to demonstrating how Nest can help them in the weeks and months to come.”
More details on the outcome of the ‘Making Automatic Enrolment Work’ review are expected to be announced by the government shortly.
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Param Basi, Pensions Technical Director, AWD Chase de Vere, says:
We support the concept of NEST as radical action is needed to address the pension crisis. We are faced with an ageing population who are not saving enough for their retirement and increasing the State Retirement Age will not do enough to resolve this.
However, we believe that significant changes are needed to the NEST rules because in its current proposed form it may be doomed to failure.
Contribution levels will need to be increased to ensure that employees build up worthwhile pension savings and contributions should be made compulsory.
However, means testing results in NEST offering poor value to many people on low incomes. For these people it may currently make little sense to invest in pensions and unless this is resolved they should be excluded from NEST.
We also strongly encourage employers to give valuable help to their employees by providing them with financial advice and education in their workplace.
Joanne Segars, NAPF Chief Executive, said: “NEST will play a crucial and long overdue role in widening pension provision. So we are pleased the Chancellor confirmed the establishment of NEST. But we await clarification on the scope of auto-enrolment, and the Government must state its plans as soon as possible.”
The reason for the Government’s decision to go ahead with creating the new National Employment Savings Trust (NEST) may be that the alternative was to exclude small employers from new rules requiring the automatic enrolment of most employees into pension schemes, according to Towers Watson.
Paul Macro, a senior consultant at Towers Watson, said: “If the Government wants to require all employers to enrol staff into pension schemes, there has to be a pension scheme to enrol them into. There has never been a clear commitment from the private sector to provide pension schemes for the smallest employers, who cannot profitably be served under current business models. If the Government had pulled the plug on NEST, it may have had to exempt small employers from the new laws, leaving a significant part of the workforce without a pension.
“The next question is how quickly the Government wants its loans to NEST to be repaid. The current plan to charge members £2 for every £100 paid in so the loan can be repaid quickly may deter people from saving in NEST altogether.”
On Monday, the Pensions Minister Steve Webb told the House of Commons: “The Government remains committed to the introduction of automatic enrolment. We have now received the conclusions of the review that we set up, and we will make an announcement to the House shortly. I am pleased to confirm that we will go ahead with auto-enrolment according to the previously intended timetable.” Similarly, today’s Comprehensive Spending Review confirms that automatic enrolment will begin from 2012.
Paul Macro said: “The official 2012 start date is something of a fiction because it only applies to a handful of employers. The real significance of this announcement is that employees due to be enrolled between 2013 and 2016 won’t see this pushed back any further. There will still be a long period where different employers are subject to different rules and where minimum pension contributions are very small. However, despite criticising earlier delays, it was always unlikely that the new Government would put its foot on the accelerator. It is aiming to balance the budget by 2015 and if people started saving in pensions sooner, they would not pay as much tax that year.”