National Employment Savings Trust “NEST”

Unless specifically exempted all employers are obliged to offer employees a pension contribution and is required to operate a ‘qualifying workplace pension scheme’ in place into which employees will be enrolled automatically.

This could be an existing or new pension scheme as long as it “qualifies”.

If you do not have a pension scheme or do not introduce one to suit your requirements then you will be able to adopt the Government’s scheme, known as the National Employment Savings Trust, or NEST.

Pension Auto enrolment and NEST pensions were phased in from October 2012.
ALL employers are required to have qualifying arrangements in place unless they apply for specific exemption.

The auto enrolment could be to your existing company pension scheme if it meets certain criteria.

Under this scheme, and depending on the size of company, all UK employers will be required to contribute a minimum percentage of each employee’s eligible earnings into a pension, assuming the employee does not “opt out”.

This is intended to incentivise them to start saving towards their retirement.

Employees will need to pay a personal contribution themselves topped up by tax relief.

Final salary schemes

These are occupational schemes provided by employers whereby the critical factor is the calculation of final salary and pension benefits. For example, in a basic scheme a maximum pension of two-thirds final salary may be given on retirement where 40 years’ service has been given.
In many schemes there may be other pension calculations such as early retirement due to ill-health etc.
The introduction of the Pensions Act 1995 imposed many burdens on such schemes. One of the major problems for schemes, as a result of this legislation, is known as the” future funding requirement”. Under these rules, strict calculations are applied to the scheme investments, on a regular basis, to ensure that there are sufficient funds to pay all the expected pensions years into the future.
For some the burden of these new calculations has proved too great and the schemes may have closed down and/or moved over to group personal pension arrangements. Worse still, it could even mean that the sponsoring company is required to invest so much money into the scheme that it must close down and go out of business.
Such schemes are not as popular as they used to be mainly for this reason.

Small Self Administered Schemes (SSAS)

If a company feels it wants a greater say in precisely where pension money is invested this could have been the perfect solution.
These are, in essence, the company equivalent of a self-invested personal pension as outlined above and could be suitable for up to 12 members.
The SSAS is not a pension plan in itself but rather a scheme into which various investments are placed. As with the personal plan the company has a degree of control over what investments are actually made. The sponsoring company can even borrow money back from the SSAS, within limits. For example, if a company has cash available it may consider making an investment into a SSAS, and obtaining the corresponding tax relief, then immediately making arrangements to borrow the investment back from the SSAS to fund future business expansion. This could be a better alternative than borrowing money from a bank or other lending institution.

The SSAS can also invest in other, more traditional, areas (described above), Pension Investment Bonds, commercial land and property etc.
The overall performance of any SSAS would therefore depend on the performance of each individual investment made. Generally speaking it is always wise for any such plan to include a spread of different investments to maximise potential returns.
At all times the company must make sure that any investment is approved by the regulations and monitored by the Pensioneer Trustee, a body approved by HMRC for the monitoring of such self administered arrangements.

The advent of the new simplified arrangements in April 2006 has lead many to speculate that this type of investment may no longer be appropriate.

Executive pension plans

These are old plans for provision of pensions and tax free lump sums mainly to directors based on a number of criteria including the member’s earnings, length of service, final salary and other factors.

Whilst investment in a personal pension plan is regulated by the amount all the contributions at the investment date the amount payable into an Executive Pension Plan was based on the expectation of the final pension.

In general, the minimum retirement age was 60, being 10 years above the minimum age for retirement under a personal pension, although retirement due to ill health could have been earlier.

At the retirement dates the member could expect to receive a potentially substantial tax-free lump sum, a pension paid during retirement and surviving spouse and/or other dependants’ patients could have been provided in the event of the member’s death after retirement.

On death prior to retirement a lump sum was paid out and a pension to the surviving spouse and/or other dependants.

Remember – there were major differences between personal pensions and Executive Pension Plans in the calculations of both the initial investment and the final retirement benefits.