A number of Freelancers have questioned how the National Employment Savings Trust (NEST) will affect them. From October 2012 the UK Government will introduce a new pension scheme to the UK as part of a bigger overall pensions reform strategy. Previously known as “personal accounts" NEST was announced on 7 January 2010.

A number of Freelancers have questioned how the National Employment Savings Trust (NEST) will affect them. From October 2012 the UK Government will introduce a new pension scheme to the UK as part of a bigger overall pensions reform strategy. Previously known as “personal accounts" NEST was announced on 7 January 2010.

The Government estimates that about seven million people are currently under saving for retirement and a major part of the reform is the Government’s ideas for making it easier for these people to save for retirement. The proposals will have wide ranging effects across every field of UK business as the onus will be put on employers to help encourage more people to save. From October 2012 UK employers will be required to automatically enroll employees into a ‘qualifying workplace pension scheme’. This auto enrolment could be to an existing company pension scheme if it meets certain criteria. If it does not meet the criteria or if you do not operate a company pension scheme then any employees will be enrolled into NEST, a simple, low-cost pension scheme.

• Between October 2012 and 2017, depending on the size of company, all UK employers will be required to contribute a minimum of 3% of each employee’s eligible earnings into a pension, assuming the employee does not “opt out”. This is intended to incentivise them to start saving towards their retirement. Employees will need to pay a personal contribution of 4% with a further 1% tax relief being added to make the minimum contribution 8%.
• Compulsory employer and employee contributions will be phased in.

The requirement
From sometime between 2012 and 2016 (depending on the size of business and type of scheme), UK employers will have to automatically enrol all eligible employees into a qualifying pension scheme and make contributions to their plan.

• Employees eligible for automatic enrolment will be:
• those who aren’t already active members of a qualifying scheme; and
• are aged between 22 years and the State Pension age; and
• earn over ￡7,475 gross a year, as announced on the 27th October 2010

As a freelancer, how does this affect me?
At the moment, the answer is that there will be no change, however watch out for future developments. The majority of freelancers operate through a limited company. There is usually one shareholder and one employee (the same person), occasionally two of each if spouse’s both work through the company. Very few freelancers take on traditional employees, so clearly the legislation is not really aimed at this market. There is still a lot of work to be done on the scheme and this is being prioratised with large employers, where the target employees work. At the moment, the regulations for small businesses, such as freelancers, have not been finalised. Furthermore, there has been no commentary about the rules if you are an employer and an employee. Obviously, as soon as this information becomes available, it will be released in future PCG newsletters. If there is a need to become registered, freelancers always have the choice to opt out of NEST. Many freelancers would be looking to make larger contributions than NEST allow and would want a wider investment choice. The introduction of the scheme could be a good prompt for freelancers to review their own retirement arrangements. When legislation is finalised for smaller businesses, the Pensions Regulator will write out to every company individually, outlining the company’s responsibilities.