The recent simplification of the pension proposals has been met with widespread approval from the business community, but what will individuals make of the plans?
From 2012, employees will be automatically enrolled in the scheme which will claim 4% of their salary. A tax relief will contribute a further 1%, in addition to a contribution from their employer of between 1% and 3%, depending on the timing of the payment.
Employees will be given basic information about the NEST scheme, after which they can choose whether to stay in or opt out. As with most standard pension schemes, employees cannot have access the funds until the minimum prescribed age by the state - currently 55.
It will be interesting to see how many people opt out of the scheme. Government forecasts expect to attract more than 2 million members by late 2016 from those employees earning between £15,000 and £30,000 per annum. This is the earnings bracket that is said to be disengaged from the savings process. The question is, is this disengagement because they cannot afford to save, or because they have a distrust of financial institutions?
The government has already spent £363,000 rebranding the scheme from "Personal Accounts" to "National Employment Savings Trust." If you are in that target income bracket and struggling to make ends meet, this is exactly the kind of government expenditure that smacks of waste. Will there be a free duck house to the first 100 employees who enroll?
With further tax rises likely to be announced from whoever wins the next election, 4% is a lot of anyone's salary. On the other hand, perhaps the grimness the thought of retiring on the state pension alone will be enough to scare people into joining the scheme.
Yvette Cooper would like to believe that the scheme will improve the lot of low paid employees everywhere, claiming that 'even during these difficult economic times, employers, industry and unions agreed with us that these reforms were vital in giving millions of people the chance to save in a pension for the first time.' However, the introduction of NEST might have the unintended consequence of worsening the pension package that such employees are offered. There is a danger that employer contributions of more than 3% will become rarer, as employers only do the bare minimum.
And in any event, at the current rate that pensions laws are being changed, who knows what the provisions will look like in 2012?
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