Building your NEST egg: A new way to fund your retirement
You may have heard about the demographic timebomb, and the concern the Government has about how people are going to fund their retirement.
The population is aging, while the number of children we are having is declining. Current figures suggest that over a quarter of under-16s alive today are going to reach the age of 100! Meanwhile, the number of employers who offer workplace pensions is decreasing.
Research shows that in 2009 only 35% of private sector employees were active members of a workplace pension scheme, down from 45% in 1999. The Government had to take steps to address this. In 2001, they introduced Stakeholder Pensions. Employers who fit certain criteria had to offer their staff a Stakeholder Pension to which employees could contribute if they wish. However, there has been no obligation for the employer or employees to contribute, which has simply elevated the problem.
The next step is to make saving for retirement compulsory, and the new National Employment Savings Trust (NEST) has been introduced. NEST is being launched in 2012 and is aimed primarily at low-to-middle income earners. Eligible employees will be automatically enrolled into the scheme. You will have to contribute a minimum of 4% of your earnings (subject to limits) into the scheme. Your employer will have to contribute an additional 3% and will receive 1% in tax relief from the government. Once enrolled, you are likely to be able to choose how your money is invested from a range of investment funds. If you leave your job, you can opt to continue saving into your existing scheme.
Self-employed people are also able to join NEST. You will be able to opt-out of your employer's scheme if you choose not to participate. If you want to remain opted out, you will periodically have to confirm your decision NEST is designed to encourage both a greater level of saving for old age and to open up access to saving for individuals who do not currently have a decent workplace pension scheme. This is another important milestone in the history of Pensions. As with the introduction of any new ruling, it’s important that both employer and employees research and understand the implications in full.
At Monetary Solutions, we offer an initial without-obligation consultation, where we can advise both employers and employees on the impact of NEST.
As with most financial matters, an early and full understanding can benefit you over the longer term. So please give us a call on 020 8760 9940 today to find out more.