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It is envisaged that a total of 8% of a workers salary will end up in a NEST account with the employee paying 4%, the employer 3% with the last 1% coming from government tax relief. A major concern remains over the ability of small firms to pay the extra costs as the economic crisis has left them vulnerable. Webb acknowledges this problem and says the plan will go ahead in stages. The larger employers will be first with smaller firms given extra time to get up to speed.

Another problem exists in the form of employees who are actually contractors still being able to accrue pension rights from their first day of employment. Webb stated that a September review will rectify this. Another hot topic involves employees on low incomes who will not be able to easily afford paying into a pension. Will they be allowed to avoid auto-enrolment? Webb says that this will not happen due to the complexities of the plan originally created by Labour. He said that at present it is straightforward but making changes could result in confusion as workers would not know if they were allowed to skip auto-enrolment or not.

This means that Webb is relying on trial and error in order for the auto-enrolment plan to be successful. The National Minimum Wage legislation includes a penalty for employers who fail to comply and this scheme is no different. Yet Webb is focusing more on the carrot than the stick. This is risky as employers will not be happy with all the current changes including the rise of the retirement age for women from 60 to 65 as well as the end of the automatic retirement age. There is the possibility that businesses will become so confused that they will stop and go back to their old ways.

According to the Chartered Institute of Personnel and Development, businesses face rough times ahead in terms of trying to explain the complexities of the system to their staff. Webb countered this by saying he was only in office for two months which is not long enough to implement any system the way he wants it. He does however acknowledge that employers may jettison the Nest scheme. Webb thinks that employers with occupational pension schemes already up and running will place their current staff in those which would be an excellent first step towards improving pension coverage. Webb also said that the government expects employers to automatically enrol workers into their pension scheme over the course of the next few years. He is not concerned whether it’s a Nest scheme or not.

Employers that are offering pension schemes will be hoping that they can benefit from the recent governmental decision to take £100 billion off the current final salary pension deficit which was done through linking pensions to a lower rate of inflation. From April 2011, businesses will be permitted to use the Consumers Price Index (CPI) to make pension related calculations rather than the Retail Price Index (RPI) which was previously used and is normally a higher rate of inflation.

These changes are supposed to assist businesses but they could end up creating problems. About half of employers have pension plans which are linked specifically to the RPI and this legally cannot be changed. This means employers will not be able to avail of such savings unless the government steps in and alters the existing law. Webb avoided addressing this issue by stating employers were allowed use whatever index they choose and are not obliged to alter it. Webb refuted suggestions that this defeated the purpose by saying some businesses may not wish to change from the RPI.

The CBI states that British businesses may have to invest approximately £500 billion into their final salary pensions in order to meet new demands set by the European Commission. Webb defiantly suggested that he would fight any legislation from the EU that will not be successful in the UK saying that issues like pensions don’t have a solution that is suitable for everyone. He is adamant that European nations should have pension schemes tailored to their specific needs.

If you haven't found all the answers that you are looking for you can find similar content in the Auto Enrolment, Basic State Pension, Pension Crisis, Pensions in the News sections, contact an adviser at the top of the page, or you could try these related posts:

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