If employers do not auto-enrol members into a ‘Qualifying Scheme’ when they reach their Staging Date, they will have to auto-enrol them into the National Employment Savings Trust (NEST).
Significant concerns have been expressed about NEST. These include the upfront charge of 2% on all contributions as employees may perceive this negatively. This together with the expected defensive nature of investment options, restrictions on the amount of contributions that can be paid to the arrangement (maximum of £3,600 p.a. in 2005 terms) and a prohibition on transfers into or out of NEST may make it inappropriate for many employers and their employees.
The inability to offer full tax-relief at source on contributions for non-basic rate tax-payers will also impact NEST’s attractiveness to over 4 million workers. Added to this the fact that death benefits will, unlike other pension arrangements, be subject to inheritance tax and the attraction of NEST significantly diminishes.
There are a number of different types of DC vehicle that employers could elect to use as a ‘Qualifying Scheme’ instead of NEST. Xafinity can assist you to assess their relative merits in order to ensure that your DC plan is appropriate for both the sponsor and your employees.