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Gavimoss
Posts: 2 Newbie
I just had a meeting with my employer who advised me of new legislation coming in at the end of the year that makes it compulsory for them to provide me with a pension that they contribute 2% of my salary to. Great I thought until I was informed that the company plans to reduce my salary by 2% to cover this cost. Are they allowed to do this? I realise that having a pension is important and I’m all for that, but what is the point in making it compulsory for employers to contribute if they are allowed to simply reduce your salary to cover the cost - surely this is a loophole that allows them to follow the rules but without actually contributing anything at all.
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a reduction like that would require a new contract of employment and would amount to a pay reduction. That is not the intention of the requirements. Now, if everyone agrees to it then the company is fine to do it (like the firms that have seen employees take pay cuts to prevent redundancies). However, I suggest legal advice is needed on this as the company appears to be trying to pull a fast one.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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My understanding was that you can opt out, the work place simply have an obligation to encourage you to take a pension. And if you do opt out, you will be automatically opted in again every 3 years, and you will have the option to opt out again.
Many work places already do this; automatically opt you in for a pension unless you opt out. Its nothing new, its just that company are going to have to do this, rather than just being encouraged to do so.0 -
Of the two percent, 1% is supposed to come from the employer and the other 1% from a combination of the employee and tax relief. Is your employer proposing to reduce your salary by the full two percent?
As of July this year it is against the law for an employer to offer an inducement to encourage an employee to opt out of a pension scheme. One of the examples of cases that appear clear cut (page 9) is given as:
"The employer tells their jobholders/entitled workers that if they opt out of, or leave, their pension scheme, they will receive any of the following:
• An extended or renewed contract in the case of a short-term worker
• A one-off payment
• A higher salary level
• A promotion."
Your employer appears initially to be offering a higher salary level to employees who opt out, thereby acting contrary to the law. Part of the 1% (the part before tax relief) coming from you would be fine and normal. But not the employer portion and the tax relief.
Is the pension to be the high risk and expensive NEST pension or some other pension? Auto-enrollment doesn't have to use NEST and NEST is the one that I expect to be preferred by employers who are trying to get people to opt out.0 -
Your employer appears initially to be offering a higher salary level to employees who opt out,
I read it that the employer plans to reduce salaries by 2% across the board, regardless of whether employees opt-in or opt-out. I agree that if the OP can opt-out and get a 2% higher salary it would be contrary to the inducement rules.
But if the OP can opt-out but would still have a 2% salary reduction regardless, that isn't an inducement (as the OP would still be best off to remain opted-in, otherwise would lose out on the employer contribution) and is a matter of contract, just as if an employer proposed a 2% salary reduction at any other time.
The DWP anticipate labour market adjustments of this sort, described in a recent Impact Assessment on page 7, part of which states:The Department considers that the labour market will adjust to offset 50 per cent of the costs arising from additional pension contributions for workers automatically enrolled, and that this will occur over a period of ten years.
In this case, there is a 100% labour market adjustment that takes place instantly.0 -
If the employer plans to reduce all salaries by 2% that seems legal if the employees choose to accept the change to their employment contracts. Also stupid. Reducing future pay rises by the same amount for all would annoy people less and be invisible.0
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Is the pension to be the high risk and expensive NEST pension or some other pension? Auto-enrollment doesn't have to use NEST and NEST is the one that I expect to be preferred by employers who are trying to get people to opt out.
Hi James - you can get the facts about NEST from our website: www.nestpensions.org.uk
Just in response to your comments above:
NEST's charges and what NEST is here to do
NEST has been set up and designed for the millions of people who will be enrolled into a workplace pension under automatic enrolment, many for the first time, and who want a straightforward, good value pension scheme. It is a low charge scheme run on a not-for-profit basis. That means it has no shareholders and one of the duties the Trustee has is to run the scheme in the interests of its members. Any employer can use NEST to meet their new duties under automatic enrolment.
NEST charges are broadly equivalent to 0.5 per cent annual management charge. That is a very good deal for our target members who currently either get offered no pension at all or are offered pensions at much higher charges, such as at 1 per cent to 1.5 per cent under stakeholder schemes.
As well as very low charges NEST has developed a carefully researched bespoke investment approach, jargon-free communications and 24-7 online access. It also has UK call centres.
NEST’s investment strategy
We invest members' money in a fund that is suitable for most people of their age. This is called a NEST Retirement Date Fund. There’s one for every year members can choose to take their money out. For example, if you plan to take your money out in 2058 we'll invest your retirement pot in the NEST 2058 Retirement Fund.
These funds focus on the issues we think are most important.- Protecting your savings from the rising cost of living
- Avoiding sudden falls in value
- Making sure you get more or less what you expect
- Taking appropriate risk to grow your fund - Different types of investment carry different levels of risk. NEST Retirement Date Funds spread your money across many different types of investment, such as shares, government or corporate bonds, and property. We regularly adjust where your money is invested based on your planned NEST retirement date and what's happening in the economy. We aim to take the right amount of risk at the right time.
- Providing clear information about your account
Alongside NEST's Retirement Date Funds, we also offer a range of alternatives.
These funds all offer the same high level of fund management expertise as NEST Retirement Date Funds and have the same low charge.- NEST Ethical Fund
- NEST Sharia Fund
- NEST Higher Risk Fund
- NEST Lower Growth Fund
- NEST Pre-retirement Fund
NEST has been set up specifically for automatic enrolment and for the new generation that will get access to a workplace pension with an employer contribution for the first time from October this year.
Any employer can choose to use NEST to enrol their workers into, and our systems have been developed to ensure using NEST is easy and works well for employers of all sizes and in different sectors.
Ask your employer about automatic enrolment and when you will be affected. It starts this October with the largest firms in the country; smaller firms will be affected from 2015 to 2017.
Opting out - how it works
We have developed all aspects of NEST following careful research amongst our potential members and their employers. For opt-out we turned to behavioural economists for an answer to a very simple question: how do we help members avoid making bad decisions?
We want to support workers in making decisions, whilst being clear we are not promoting opt out.
A bad decision might be a member opting out without having an opportunity to understand the consequences of their action. Or it could be a member not opting out because they don’t know how to or can’t follow the process.
Our research told us that members want to feel in control, and to have enough information to be able to make an informed decision. They also didn’t want the process to be too onerous if they did decide to opt out.
We let members see how much they could lose by giving up the right to have employer contributions made on their behalf. This part of the process was guided by our research into understanding people’s reactions to loss, and worker reactions to our prototypes.
As well as opting out online, members can also opt out electronically using the phone or can do so on paper by filling in a form. They get the same information whichever method they choose.
How is NEST getting on?
We are already working with over 150 employers, large and small, who have signed up to use NEST early. We are getting great feedback from our early users – employers and members alike – who in particular praise NEST’s ease of use and clear communications.
MSE.com is setting up a NEST Q&A thread so you can pose questions to us directly and so we can keep you informed about our progress.
Got a question about NEST?
If anyone has a question about automatic enrolment or NEST, please look out for the thread and I'll do my best to answer!
Sorry for the long response, but wanted to make we got some of the key facts out there for you.
If you need more information about NEST, please visit our website.“Official Company Representative
I am the official representative of NEST. MSE has given permission for me to post in response to queries about the company, so that I can help solve issues. You can see my name on the companies with permission to post list. I am not allowed to tout for business at all. If you believe I am please report it to forumteam@moneysavingexpert.com"0 -
NEST Representative, a couple of questions first:
1. Does NEST permit transfers out, say to buy an annuity elsewhere or to go into drawdown, and is this possible at any age from 55 while still remaining in NEST for new pension contributions?
2. At least one parliamentary committee has recommended removing the ban on transferring in to NEST, is it also recommended to remove the ban on transferring out that is the major component in making NEST a high risk option?
Then some comments on your reply:
3. NEST is not cheap compared to the best deals available in the market, only to the less good deals. The charges may be better than no pension but employees and their employers should seek the best deal, not settle for NEST. MSE isn't about settling for the less good choices, it's about picking the best.
4. NEST is a high risk option for employers and employees because once the money is paid in to NEST it cannot be moved to a pension offering a better deal, whether that is on charges or to get a better range of investments. NEST could raise the charges again and people would still be locked in.
5. NEST's investment options are severely limited and inadequate for those who want to do serious investing for their retirement.
6. NEST has deliberately chosen to harm the investment returns of younger scheme members by using a low equity mix for the initial years instead of explaining about volatility and educating people to become better investors.
7. NEST has failed to meet the cost target given by the Reports of the Turner Pensions Commission, the 0.3% total cost that was for example given on page 18 of the Final Report as a reasonable target for members choosing passive index-tracking funds like those offered by NEST.
All in all, at the moment the NOW: Pensions proposition looks like a better deal for both employers and employees. It has a generally better mixed investment default fund that should do well for those who take no interest, allows transfers out so there is no high risk lock in and plenty of investment choice for those who can use that.
Because of the high risk and poor investment selection, for the younger age group, there is a substantial chance that at present I will suggest opting out and using a personal pension or S&S ISA instead of accepting a NEST pension. A removal of the ban on transferring out would certainly change that, it's unlikely that the future levels of employer contributions and tax relief will be sufficient to, even though they will be higher than the current ones. A long time locked into sub-optimal investments with higher than necessary charges just isn't worth accepting when there are alternatives available.
Now: Pensions is of course a competitor to NEST and likely one of many who will see the NEST offering and deliberately offer better terms for employers and employees, just as happened to the Stakeholder Pension standard which advanced the whole market even though the product itself became largely obsolete.0 -
have to admit i am looking forward to the NEST representative answering those questions, thanks James for asking them
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Dear Gavimoss,
There is another thread that is very similar to this one. This is a variation of contract, you can verbally accept a variation of contract (it is possible to, so be careful what you agree to in front of potential witnesses). But you must be careful not to push your company into insolvency by industrial action as then you will have no salary.
It's not the best of situations, and there is no easy solution but check out the other threads here. Unfortunately, we will always have rubbish employers who will attempt to squeeze all they can from their staff - whether they need to or not.
To Nest sales representative - That's not what OP's question was. This forum is not for sales pitches - I found that out the hard way too!
Just learn from this error and don't post a wall of text about why your pension is good. I (being an IFA) could find about 3 GPP's that do all that and much more - unfortunately the government didn't force employers to use IFA's and allow the private sector to work, they dished out a load of money to those that spent the most on their pitch.
How on earth has you copy and pasting your KFD onto this site helped the OP answer their query, shame on you, at least I only put my url on in my sig.
You are a worker for a company that has won a government contract - well done, now either actually help people or clear off.0
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