The attached article relates to the forthcoming introduction of the National Employment Savings Trust (NEST) which, for larger employers, comes into force in October 2012. Those employers will now be receiving written guidance from the regulators as to their responsibilities and, of course, how the new system will operate. In a Defined Contribution (Money Purchase) arrangement, the minimum contribution is 8% of qualifying earnings, with at least 3% be paid by the employer. Please read on. If you require any further assistance please contact me by phone or e-mail at your convenience.

1. NEST: National Employment Savings Trust
Countdown to Launch (October 2011)
The following article relates to the forthcoming introduction of the National Employment Savings Trust (NEST)
which, for larger employers, comes into force in October 2012.
Those employers will now be receiving written guidance from the regulators as to their responsibilities and, of
course, how the new system will operate. This guidance, which is available online, covers the extent of the
employer’s duties across 9 individual guides.
Furthermore the Financial Services Authority (FSA), which has overall jurisdiction, has also finalised its rules
covering such topics as automatic enrolment and employers offering alternative schemes, such as GPP’s.
This latest Newsletter highlights a number of the key issues, which will affect all employers over the next six
years, whilst NEST is integrated into the UK pension system.
Treatment of different worker groups
There are broadly three main groups of workers that are affected by NEST be they full-time employees or
contract workers.
Eligible Job Holders: must be automatically enrolled between the age of 22 and State Pension age. They
will earn over a threshold, which at this stage is likely to be the income tax personal allowance - £7,475 in the
tax year 2011/12. However, the Government has indicated that it wishes to increase this to £10,000 per
annum.
This affects all workers working in the UK regardless of their nationality, their location of the employer
company or the length of their stay in the UK.
Non-Eligible Job Holders: have the right to opt into the Pension Scheme with the same basic rules as
eligible job holders. They are under age 22 or over State Pension age, but under 75 years. Similarly they may
be earning under the current threshold. I will not at this stage to into any greater detail regarding the lower
threshold of earnings.
Entitled Workers: this final group are very low earners (less than the NIC primary threshold) who are also
not job holders. Although they have the right to ask the employer to make pension arrangements for them,
the employer will not have to contribute.

2. Interestingly, self-employed, sole employee directors and non-executive directors are beyond the scope of
automatic enrolment.
Furthermore employers can defer automatic enrolment for up to three months of the employee starting
service, but must warn eligible job holders in advance.
Contribution Requirements
In a Defined Contribution (Money Purchase) arrangement, the minimum contribution is 8% of qualifying
earnings, with at least 3% be paid by the employer.
At the present time it is based on 2010/11 tax year (qualifying earnings are between £5,715 and £38,185).
This includes all sources such as overtime, bonuses and commissions.
Companies which operate pension schemes on basic salary basis only must meet one of the 3 basic
requirements:
 9% of pensionable earnings/at least 4% payable by employer contribution
 8% of pensionable earnings/at least 3% payable by employer (pensionable earnings at least 85% of
total pay for all members)
 7% of pensionable earnings/3% employer (all pay must be pensionable)
Although this does complicate matters, this will permit more employer pension schemes to qualify under NEST
regulations.
Defined Benefit Pension Schemes (Final Salary & Career Average)
Although I will not go into any detail in this article, Defined Benefit Pension Schemes will also need to fall in
line with NEST regulations in particular auto enrolment.
NEST - Suitable Investment Strategy
Although there has been a gradual evolution, which continues as we speak, the NEST regulations have
accepted that members of an appropriate NEST pension must also have a reasonable level of choice in terms
of how they invest their pension monies.
Although the choice is unlikely to be quite as wide ranging than those offered by Group Personal Pension
Schemes, there has been a recent introduction of so called Lifestyling funds. These permit a gradual reduction
in high risk funds as the pension member moves towards retirement age, in order to reduce volatility and
potential capital erosion of funds as they reach retirement.

3. The default NEST options are referred to as Target Date Funds, where risk is governed by the individual’s
proximity to retirement. This is in 3 phases as follows:
Foundation Phase - For 5 years, with members joining from age 22, the pension adopt a generally low
risk position, so as not to discourage the member from continuing with membership of the NEST pension
Growth Phase - Aiming to offer returns of 3% plus inflation for most of the term of membership
Consolidation Phase - Approximately 10 years from retirement, with a gradual move to lower risk funds,
to reduce the possibility of capital erosion
Both Ethical and Sharia, as well as lower growth & higher risk funds, will also be available. It is likely that
these options will satisfy the majority of NEST members.
Preparing for Employer Duties
Last but no means least, the Pensions Regulator has now issued a document (Guide No.2) which details the
responsibility of the employer in respect of auto enrolment, implementation and management on behalf of the
membership.
This details several key areas below, which I will not cover in this article, but would be happy to discuss:
 Initial assessment of eligible groups
 Selecting a NEST compatible scheme and contribution level
 Announcement and roll out to members
 Establishing and management of a suitable payroll/collection system, dealing with new members and
opt outs instruction of a robust record keeping system
 Reviewing scheme suitability on a regular basis
It is quite clear that this simple initial concept may be incredibly burdensome to many employers, particularly
those who do not operate pension schemes at the present time. Unlike Stakeholder in 2001, this is a
compulsory pension scheme and both the Government and Pension Regulator made clear that they will not
tolerate any employer non compliance.
For this reason Chartwell offer a review, implementation and management service for NEST to help employers
navigate through this complex legislation.
If you require any further assistance please contact us by phone or e-mail at your convenience.