Planning for retirement Autoenrolment and AVCs - Financial expert and presenter of BBC Radio 4s Moneybox Paul Lewis gives his tips on planning for retirement talking about autoenrolment and AVCs
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NEST is a new scheme set up by the government to help people who don't have an existing pension scheme.
You may have heard the scare stories about people not saving enough for retirement and be wondering how you’ll manage. But if you’re still working and you haven’t been paying into a workplace pension, there are changes taking place that will help you prepare.
Auto-enrolment is the new system where employers must enrol you in a pension scheme and you decide whether to remain signed up to it or opt out.
The National Employment Savings Trust (NEST) has been set up mainly for workers whose employer did not have an existing pension scheme to sign them up to. Here we answer some of the most commonly-asked questions about NEST.
The National Employment Savings Trust (NEST) is an independently-run pension scheme backed by the Government. It’s designed particularly for low-to-moderate earners, and those whose employer didn’t previously offer a pension scheme.
From October 2012, if you work for a large employer, have been with them for at least 3 months, and earn more than £8,105 a year, your employer is legally obliged to enrol you in a pension scheme.
Those working for smaller employers will be auto-enrolled in a pension scheme by 2016. If your employer doesn’t already have a company pension set up, they must enrol you into NEST.
If you’re working, it’s likely that you’re paying National Insurance contributions (NICs) which build up over your working life and mean that you’ll have a right to a basic State Pension when you retire.
The State Pension age for women has been increasing in stages from 60 to 65 since April 2010 and this will continue until November 2018. The State Pension age for men and women will reach 66 by 2020 and 67 by 2028.
However, it is a good idea to save more if you can. The sooner you start saving and the more you save, the better off you will be in retirement.
If your employer has chosen NEST as the pension scheme for their employees, they should automatically enrol you. However, you can keep track of how much you’re saving for retirement by switching on your online account.
You’ll be given a NEST ID and you can create your own password. If you don’t activate your online account, you’ll receive a paper statement after the first year, but you’ll have to contact NEST after that if you want to keep getting paper
Total contributions to NEST must be at least 8% of your earnings over a certain amount (currently £5,035) of which at least 3% must come from your employer.
So you contribute up to 5% of your earnings over £5,035, depending on your employer’s contribution. You can contribute more than the minimum if you want to.
If you have a NEST pension, you will also benefit from tax relief – this means the Government claims tax on your contributions on your behalf and adds it to your pot.
There’s a limit of £3,600 a year that can be paid into a NEST pension, including your employer’s contributions, your own contributions, and the tax relief from the Government.
It’s your choice whether or not to stay enrolled, not your employer’s. As of the dates stated, it’s a legal requirement for employers to enrol you in a pension scheme. You shouldn’t be pressured into opting out of the scheme.
If you leave your employer to work somewhere else and your employer doesn’t use NEST, you can choose to carry on paying into your NEST pot in addition to the pension they enrol you into. You can also continue to contribute to it if you become self-employed.
Once you reach your 55th birthday, you’re entitled to take your money out of NEST any time before you turn 75. NEST will set a date that they expect you to retire, usually in line with your State Pension age.
However, if you want to choose a different date you can let NEST know by phone or letter, or by logging in to your online account. They can then ensure that your money is ready for you to take out when you want it.
For more information about NEST, visit the NEST website
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