16 October 2012 last updated

NEST workplace pensions launch date for all employees

From the 1st October 2012 the Government's NEST pension provision will eventually require all employees to contribute to a pension plan and provide more income for their retirement. The National Employment Savings Trust (NEST) is officially launched to provide a low cost workplace pension scheme designed to meet the needs of low to moderate earning employees. Implementation will be gradually introduced from now until October 2016 with larger employers obligated to establish pension schemes for their staff initially and smaller employers beginning from January 2015. A NEST fund can be used to purchase an annuity at retirement and will be in addition to the State pension. In particular for smaller companies where many low paid employees do not have access to a workplace pension auto-enrolment will mean both staff and employer will contribute.

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Workplace pensions and auto-enrolment

NEST is designed to reverse the decline in employee pension provisions by making the process easy for employees where the employer will have the flexibility to choose the scheme for their staff, making deductions from the employees gross income as well as the employers contribution. Employers can select their existing scheme, a new scheme of their choice that meets certain criteria or enroll staff into NEST, although it is possible for the staff member to opt out of the scheme. Auto-enrolment will not apply to companies employing under 58 staff until January 2015.

To be eligible an employee must be aged 22 years and up to the State retirement age and earning above the income tax personal allowance of £8,105 pa for the 2012/13 tax year. Eventually the contributions will be 3% from the employer and 5% gross (including 1% of tax relief) from the employee making a total of 8% to the workplace pension fund. As this is a high level of contribution in the current economic climate the starting level will be lower at 1.0% gross of taxable income (including 0.2% of tax relief) and 1% from the employer making 2% to the fund.

Current pension rules apply so the NEST workplace pension can be accessed from the age of 55 with a 25% tax free lump sum available with the balance being used to purchase annuities or drawdown from the fund.