In the UK, we are now living longer and having fewer children. As a result, workplace pension schemes have come under increasing pressure as they have to cover retirees for longer with less income.

At the same time, people are not saving enough for their retirement off their own back so the government is getting worried about its own ability to cope with state payouts.

The Government has long realised that compulsion – rather than simply incentive – is one of the best ways to ensure that people save. Their latest measure is therefore the ‘National Employment Savings Trust’ (NEST), set for implementation in 2012 and designed to encourage both a greater level of saving for old age and open up access to saving for individuals who do not currently have a decent workplace pension scheme.

What is NEST?

NEST is being designed to be a simple, low cost pension plan aimed primarily at low-to-moderate income earners aged between 22 and state-pensionable age. It will offer a small range of simplified investment options (including a default fund for those who cannot choose) and will be operated centrally as a National Pensions Savings Scheme.

Every employee earning more than £5,035 a year* needs to be automatically enrolled in the scheme unless they either actively opt out or there is a suitable workplace equivalent scheme into which they will be enrolled instead. As an incentive, contributions will come from three different sources:

– 4% is contributed by the employee*
– 3% is then added in by the employer and
– a final 1% is added by the Government (in the form of tax relief).

In other words, for every £1 the employee contributes, an additional £1 is received, doubling the amount they actually then have invested on their behalf.

* Contributions are a percentage of eligible earnings, ie: 

March 2012