Will NEST mean lower pensions for employees?

The National Employment Savings Trust (otherwise known as “NEST”), was invented by the previous government and is going to be kept on by the coalition, albeit with some tweaking.

It aims to ensure that all employees will eventually benefit from a private pension that receives contributions from their employer. The roll out of the scheme will be gradual, but larger employers must take steps to get it in place by Autumn 2012.

As the state pension becomes more expensive to deliver due to increasing longevity and a growing elderly population, governments of all colours are united in the view that individuals (and their employers) need to shoulder more of the burden of providing for them in their retirement.

Under the NEST scheme, employers will eventually end up contributing 4% of their workers’ salaries to their pension pots.

However, a recent survey by the Association of Consulting Actuaries (ACA) has revealed that rather than providing a basic pension package that they will use as a starting point, a significant minority may end up reducing the contributions they currently make to the 4% level.

41% of the employers polled said that they intended to do this.

So rather than improving the lot of employees, NEST may actually end up reducing the pension benefits they currently enjoy.

According to the ACA survey of 210 major employers, the principle of NEST is widely supported, with 75% claiming that they broadly backed the concept. But the devil is in the detail, with 70% of respondents claiming that the scheme was too complex.

Notwithstanding the cost and hassle that NEST presents for employers, the ACA are also concerned that the scheme may potentially leave lower paid workers out of pocket in the long run. Under the current proposals, it is possible that lower paid workers could lose out on benefits they may have been able to claim, without being able to replace this income with pension payments.