Tim Jones: Chance for the low-paid to build pension Nest-egg

THE Nest Corporation, a central plank of the government's pensions reform, will be launched in July. It is my job to set up the new scheme, which will help provide a pension for the first time to millions of people on low and moderate incomes.

Work is gaining pace, with delivery of Nest (the National Employment Savings Trust) on track and progressing well. I am focusing on the delivery of a low-charge, occupational pension specifically designed for those who currently have no pension to call their own.

Lawrence Churchill, Nest Corporation's first chair designate, has already been appointed and recruitment of trustees is under way.

Before then we have a general election and could see a change of government in Westminster. Further debate around pensions policy is inevitable. While we welcome debate, we have to remember the overarching objective. That is that we enable the estimated seven million people who are not saving enough to retire on the pension they are likely to want, or expect.

Currently around 750,000 employers in the private sector offer no pension to their workers. More than half of workers earning between 5,000 and 25,000 do not contribute to a pension. A further 280,000 employers contribute less than 3 per cent.

Whatever the outcome of the election, I am confident Nest will be a critical part of successfully addressing under-saving for retirement. Last week, shadow chancellor George Osborne pledged his backing for auto-enrolment.

Automatic enrolment, (whereby employees are compulsorily enrolled into a pension, but can opt out) will encourage people to save for retirement and not be reliant only on whatever the state safety-net can provide. Nest will be one of the pension products available to them.

Starting from 2012, employers will be required to make a minimum contribution to their workers' retirement pots, meaning employees can eventually expect a total minimum pension contribution of 8 per cent on qualifying earnings. This will be made up of a minimum 3 per cent employer contribution, tax relief and the worker's own contribution. Employers and workers can contribute more than the minimum if they wish.

Nest will have a public-service obligation to be open to any employer that wants to use it. This is significant, because there are groups of employers and workers that the existing pensions industry struggles to service. Business that can be less attractive to private providers includes small and micro employers, particularly where workers are transient and on low-to-moderate incomes.

But Nest is just one of the options available to employers. Providing the scheme they choose meets the criteria set out by the government, employers can fulfil their new duties either by using their existing workplace pension scheme, setting up a new private scheme or by using Nest. The choice of which qualifying workplace pension or combination they decide to use will be up to them.

Employers that choose Nest will be able to use it in a variety of ways. It can be used as the only pension scheme an employer offers its workers, or alongside other pension provision. For example, Nest will be suitable for use as a foundation scheme on top of which others are added as an employee benefit. It could also be used for a certain category of worker, such as seasonal workers or staff who take career breaks often.

Nest aims to be a simple, low-charge but high-quality pension scheme. Low charges are important to ensure that low-to-moderate earners keep as much of their pension savings as possible to convert into income at retirement. Nest is also being designed to be low cost and easy for employers to use. It will be an e-business to reduce the administrative burden.

Anyone who becomes a member of Nest will keep the same retirement pot throughout their working life. It belongs to the individual and travels with them, meaning employers will not have to look after the pots of ex-workers. This also means several different employers can contribute into the same pot over a member's working life. If the member has more than one job, Nest will allow more than one employer to contribute to their pot at the same time.

Workers can contribute to their Nest retirement pot throughout their working life, even if they change jobs or take a career break, benefiting from employer contributions as they move jobs.

All in all, Nest is a critical component of the reforms that will change the UK pensions landscape.

Tim Jones is chief executive of the Personal Accounts Delivery Authority