2012 pension

MOUNTY

Will i be able to redirect my 1% earnings and 2% employers contributions into my private SIPP rather than the new NEST pension? Also, are companies able to contract out as well as employees?

hugheskevi

Will i be able to redirect my 1% earnings and 2% employers contributions into my private SIPP rather than the new NEST pension?

That depends on your employer. NEST is simply a pension vehicle with which employers can choose to meet their new responsibilities. If employers choose to meet their responsibilities in other ways (eg putting money directly into your SIPP or some other pension) that is fine.

What couldn't happen is for the money to go into NEST and then be transferred to your SIPP, as there is a ban on transfers in and out of NEST below age 55.

Also, are companies able to contract out as well as employees?

To be clear, contracting-out refers to not accruing State Second Pension and in return getting money put into a private pension (or paying lower NI contributions). From 2012, it will not be possible to contract-out into a Defined Contribution arrangement.

With regard to the new employer duties and NEST, the individual can choose to opt-out. The employer cannot choose to opt-out, and there are rules to prevent employers inducing members to opt-out.

MOUNTY

hugheskevi wrote: »

That depends on your employer. NEST is simply a pension vehicle with which employers can choose to meet their new responsibilities. If employers choose to meet their responsibilities in other ways (eg putting money directly into your SIPP or some other pension) that is fine.

What couldn't happen is for the money to go into NEST and then be transferred to your SIPP, as there is a ban on transfers in and out of NEST below age 55.

To be clear, contracting-out refers to not accruing State Second Pension and in return getting money put into a private pension (or paying lower NI contributions). From 2012, it will not be possible to contract-out into a Defined Contribution arrangement.

With regard to the new employer duties and NEST, the individual can choose to opt-out. The employer cannot choose to opt-out, and there are rules to prevent employers inducing members to opt-out.

Do you know if the 1% and 2% contributions are for gross or net employee salary?

dunstonh

Do you know if the 1% and 2% contributions are for gross or net employee salary?

Gross. It will end up at 3% employer and 5% gross employee by 2017.

If it is NEST that they choose, it is not on your whole income. Plus, there is an embargo that prevents transfers in or out of NEST into personal schemes. That is up for review in the long term but not initially.

MOUNTY

dunstonh wrote: »

Gross. It will end up at 3% employer and 5% gross employee by 2017.

If it is NEST that they choose, it is not on your whole income. Plus, there is an embargo that prevents transfers in or out of NEST into personal schemes. That is up for review in the long term but not initially.

Gross i understand but now confused when you say it is not on your whole income!!!!

dunstonh

Employers will be required to contribute 3% of the jobholders qualifying earnings. (phased in as you already know).

The proposed maximum contribution in 2005 was £3600 but with indexation to 2012, that is likely to be around £4400. However, that is not known yet.

Qualifying earnings are earnings between designated lower and upper bands. These are are £5035 and £33540 in 2006/7. The actual limits that come in are yet to be published and can be adjusted annually.

Typically, most employers pay x% of your salary into the pension. However, NEST is based on earnings limits that could see less going in than a typical group personal pension or contracted in/out money purchase scheme (occupational).

MOUNTY

dunstonh wrote: »

Employers will be required to contribute 3% of the jobholders qualifying earnings. (phased in as you already know).

The proposed maximum contribution in 2005 was £3600 but with indexation to 2012, that is likely to be around £4400. However, that is not known yet.

Qualifying earnings are earnings between designated lower and upper bands. These are are £5035 and £33540 in 2006/7. The actual limits that come in are yet to be published and can be adjusted annually.

Typically, most employers pay x% of your salary into the pension. However, NEST is based on earnings limits that could see less going in than a typical group personal pension or contracted in/out money purchase scheme (occupational).

With the state pension, private SIPP and the NEST pension, should i now be more worried of the TAX to be paid once i go over my personal allowance on retirement! Should i now start looking to invest in ISA's instead of SIPP?

hugheskevi

With the state pension, private SIPP and the NEST pension, should i now be more worried of the TAX to be paid once i go over my personal allowance on retirement!

That is part of the decision making process in selecting between different tax wrappers and investments.

I'd expect someone with a SIPP to be more concerned with the point at which the personal allowance starts to be withdrawn and you start to pay 30% tax (at £22,900 p/a) than with the personal allowance (£9,490 p/a).

If you don't expect your SIPP to contain enough to get you over that modest hurdle of £9,490 p/a including State Pension you can probably get better value from a personal pension.

Should i now start looking to invest in ISA's instead of SIPP?

Far too little information to judge.

JoeCrystal

So it may be better to opt-out of the NEST if you are already contributing fixed percentage of the salary to personal pension, in spite of giving up employer's contribution?

I imagined it will be easier to figure it out once they release full information come out about NEST and how it is to be paid into (That if they are going ahead with it).

hugheskevi

JoeCrystal wrote: »

So it may be better to opt-out of the NEST if you are already contributing fixed percentage of the salary to personal pension, in spite of giving up employer's contribution?

I imagined it will be easier to figure it out once they release full information come out about NEST and how it is to be paid into (That if they are going ahead with it).

I don't see how it would be better to opt-out and miss out on the employer contribution.

If you are happy with the amount of pension contributions you are making for your target retirement income, I think it would be better to reduce the personal pension contributions and take the employer contributions for the vast majority of people.

dunstonh

So it may be better to opt-out of the NEST if you are already contributing fixed percentage of the salary to personal pension, in spite of giving up employer's contribution?

Free money with tax paid on it is still better than nothing with no tax paid on it.

What you will find is that its no different to the current pecking order. Employer pension with contributions (whether NEST or alternative) is top of pecking order. Then comes personal provision, S&S ISAs etc.

I imagined it will be easier to figure it out once they release full information come out about NEST and how it is to be paid into (That if they are going ahead with it).

They are going ahead with it after the private sector said they couldnt afford to do it with the level of charges desired. It will be collected via payslip. Higher rate relief will be available but will have to be dealt with via self assessment.

Hopefully, many companies will prefer the group personal pension or even individual personal pensions (for small number of employees) over NEST.

There are a number of areas not yet known or have anomalies. For example, you will be allowed to do an open market option for annuity purchase. However, as you cannot transfer NEST into a personal scheme, you won't be able to do income drawdown. Also, under open market option, where you have more than one scheme you wish to consolidate, that is normally done by transfer with immediate commencement. Technically, that is a transfer and not possible under the NEST rules.