Glossary

A

AEI: Average Earnings Index

Annual contribution limit: The maximum amount that can usually be paid into a NEST member’s retirement pot in one tax year. This includes member contributions, any contributions from their employer and any tax relief from the government. The amount may be higher for members who have more than one employer. This can also be referred to as the contribution cap.

Annual management charge (AMC): This is a charge taken on the whole of a NEST member’s retirement pot each year. The level of NEST’s AMC is currently 0.3 per cent.

Annuitant: This is a person who receives, or is entitled to, an annuity.

Annuity: A financial product that provides a regular income stream for a fixed period or for the rest of a worker’s life. NEST often refers to annuities as products providing a retirement income.

Automatic enrolment

Making a worker who meets certain requirements a member of a qualifying workplace pension scheme without them needing to make an active decision.

Starting from 2012, the largest organisations will have to automatically enrol their workers. Medium and smaller organisations will be impacted over the following years until 2018. The Government proposed this new date on 25 January 2012. The detail of these changes will be consulted on in due course.

Automatic enrolment only applies to workers with qualifying earnings who are aged at least 22 and under State Pension age.

Automatic enrolment date

Once automatic enrolment applies to an organisation, it will have to automatically enrol those workers who meet the requirements. When automatic enrolment first applies, the organisation may have a large number of workers whose automatic enrolment date occurs at that time.

After that, under anticipated legislation:

new UK workers will have an automatic enrolment date on joining an employer if they are at least 22 and under State Pension age when they join and earn more than £7,475 a year in 2010 terms (see notes below)
existing UK workers who earn more than £7,475 but are under 22 will have an automatic enrolment date on reaching 22
existing UK workers who are 22 but do not earn more than £7,475 will have an automatic enrolment date when they first become entitled to earnings of more than £7,475

Notes - This figure is contained in the Pensions Bill 2011. It could change before the Bill receives Royal Assent and becomes law, or the provisions in the Bill come into effect. The figure will be reviewed every year by the Secretary of State. When this figure is used, it is per year, in 2010 terms and this footnote applies.

B

Base scheme: A base scheme is a workplace pension scheme employers use to pay the legal minimum contribution on behalf of their workers. A base scheme can be used alongside another scheme into which the employer can pay additional contributions.

C

CSV file

A comma-separated values file (CSV) is a type of file that can store data from spreadsheets in a text format.

CSV is widely used and is one of two types of file format you can use to send us information about your workers and the contributions you make to NEST.

The other type of file we accept is XML.

You can download our Microsoft® Excel® template which helps you to create a CSV file.

Company stocks: These are shares in the ownership of a company. Companies sell stocks to help their organisations grow. Once a share has been sold it can be resold on the stock market.

Compliance regime: A set of powers and processes that The Pensions Regulator (TPR) can use to ensure that organisations comply with their employer duties.

Contracted out: Occupational pension schemes can choose not to participate in the State Second Pension if they meet certain conditions. If a scheme is contracted out it means members will not build up any entitlement to the State Second Pension while they are a member. Instead, some of what they would have to pay as National Insurance contributions goes to their workplace pension scheme.

Contributing earnings

This is a term used by employers who choose a different way of working out the percentage of earnings to pay to NEST, rather than basing contributions on qualifying earnings.

It describes the earnings on which the contributions are calculated according to the way the employer has chosen. This could include all income below £5,035 or above £33,540 (see notes below). Employers could also use only a part of their workers’ earnings, such as basic pay without overtime or bonus payments.

Notes - These figures were set out in the Pensions Act 2008 and must be reviewed annually by the Secretary of State.

Contribution arrangements: This refers to where an employer wants to pay contributions into a retirement pot for a worker who is already a member of NEST.

Contribution cap/limit: The maximum amount that can usually be paid into a NEST member’s retirement pot in any one tax year. This includes member contributions, any contributions from their employer and any tax relief from the government. The amount may be higher for members who have more than one employer. This can also be referred to as the annual contribution limit.

Contribution charge

NEST is funded by a government loan. While the scheme is paying this loan back, NEST’s members will pay a charge on each contribution that is paid into their pot. This charge is currently set at 1.8 per cent.

When the government loan to finance the setting up of the scheme is repaid, we expect to reduce charges further. Before making any changes to the level or structure of NEST charges the trustee must consult with the Member Panel.

Contribution schedule

To process contributions an employer must fill out a contribution schedule. This details all the actual contributions made in each pay reference period.

Contribution schedules include an entry for each member enrolled, with:

the name of the worker and their National Insurance number
their earnings in the pay reference period
the amount of employer and worker contributions paid into their pot.

D

DWP: Department for Work and Pensions

Defined benefit pension scheme: A type of pension scheme which promises a certain level of retirement income to its members. The amount of retirement income is usually a fraction of the worker's yearly earnings for each year they have been a member of the scheme. For example, it might be 1/60th of final pay for each year.

Defined contribution pension scheme: A type of pension scheme where the retirement income a member gets depends on how much has been contributed, investment returns and the amount of charges over time.

E

Earnings: Someone’s earnings include their salary, wages, overtime, bonuses and commission, as well as statutory sick pay, and statutory pay someone receives during paternity, maternity or any other kind of family leave.

Eligibility: These are conditions that somebody must meet to be a member of a pension scheme.

Eligible workers

These are workers who must be automatically enrolled into a qualifying workplace pension scheme when the employer duties impact an organisation. Under expected legislation these individuals will work in the UK, be aged at least 22 but not yet reached State Pension age and earn more than £7,475 (see notes below) a year in 2010 terms.

Employer duties

The Pensions Act 2008 establishes new duties for UK employers that start to be introduced from 2012. These duties require employers to provide some or all of their workers with access to a workplace pension scheme that meets certain legal requirements. Employers will have to automatically enrol certain workers into a qualifying pension scheme and pay contributions on their behalf.

The duties will start to be introduced from 2012 and will apply to the largest employers first. Medium and smaller employers will be affected later.

Employer duty date: The date on which the employer duties first apply to an employer. This is defined in legislation through The Employers’ Duties (Implementation) Regulations 2010.

Employer mailbox: Employers that use NEST will communicate with us through messages sent to and from their own secure online mailbox.

Employer panel: A panel of individuals including employers established to consult with NEST Corporation on how NEST is run.

Employer terms and conditions: The terms and conditions for employers that use NEST. These are based on NEST’s rules.

Enrolment information: The information employers have to give their workers as part of the process of becoming a member of NEST or another qualifying pension scheme.

Entry level scheme: An organisation may already have a pension scheme in place with a waiting period. If so, they can enrol their workers into a separate entry level scheme for the length of the existing scheme’s waiting period.

Estate: This refers to the value of what a member leaves behind when they die, including property and possessions, less any debts they owe. If a member doesn’t name someone who should receive their retirement pot if they die before taking their money out of NEST, those savings will be classed as part of their estate.

Ethical investment: Ways of investing money that are in line with a set of ethical criteria set by the trustee.

F

File Transfer Protocol (FTP)

File Transfer Protocol is one of the ways you can upload large amounts of data about your workers and the contributions you make to NEST.

If you want to use FTP you need to let us know so we can help you set up your file transfer software.

Once FTP is set up you can upload files using a secure file transfer process.

File format

File format describes the kind of files you use when you send us information about your workers and the contributions you make to NEST.

NEST accepts CSV files and XML files.

You can use CSV files for uploading information through the NEST website or for sending by File Transfer Protocol (FTP).

Only use XML files for sending by FTP.

Fund: Funds are usually made up of investments, for example, shares and other financial products and are a way of investing a member's retirement pot in lots of different ways.

Fund manager: This is a person or organisation responsible for managing the day-to-day running of a fund.

Funding level: This relates to a defined benefit scheme and it describes the difference between the funds a pension scheme has in terms of the money it is looking after, and the funds it needs to pay the promised retirement income to its members.

G

Gross annual earnings: How much an individual earns before tax or National Insurance.

Group personal pensions (GPP): A group personal pension is a set of personal pension arrangements for workers at one organisation. The workers contribute, and the organisation may contribute, through this one arrangement to provide retirement income.

Guaranteed annuity: This is a retirement income that is paid until the person getting it dies. If they die before a certain date, the annuity is then paid to their dependants until that date.

H

HMRC: Her Majesty’s Revenue and Customs

Hybrid scheme: A pension scheme that provides some members with retirement incomes on a defined benefit basis, and other members with retirement incomes on a defined contribution basis, and some members with both.

I

Implementation regulations: These laws set out details of when the process known as staging will take place.

Incapacity: A physical or mental condition that means a member is incapable of carrying on any occupation.

Investment: This is when the money paid into a pension scheme is used to buy financial products like stocks and shares, bonds and properties. These are called investments.

Investment returns: This is the change in value of an investment over a given period of time which can make it worth more or less.

Investment risk

Different financial products such as shares, bonds and cash carry different levels and types of risk to the final value of a member’s retirement pot.

More risk could mean that the potential for growing the value of their investment is greater, but there is also an increased possibility that the value may fall. On the other hand, lower risk investments might offer greater security against falls in value but typically with lower potential returns.

J

Jobholder: This is defined in the legislation as a worker in the UK who works, or ordinarily works in the UK, is aged at least 16 and under 75 and to whom qualifying earnings are payable.

Joining event: A joining event applies when a member is first enrolled in NEST. The event could be because their employer needs to comply with the new employer duties, or because the worker meets the other criteria and has started to earn more than £7,475, or reached age 22. There may be other joining events if the member opts out or stops contributing to NEST and is later re-enrolled.

Joint life annuity: This type of annuity is paid to one person until they die, and payments continue if that person’s partner is still alive, and are paid to the partner until they die.

K

L

Lifetime annuity: A lifetime annuity is a financial product that members purchase with their retirement pot. The annuity provides the person who buys it with a retirement income for the rest of their life. A lifetime annuity must meet the conditions imposed by the Finance Act 2004.

M

Member: An individual who has joined NEST and has not yet taken their money out of NEST.

Minimum contributions

The minimum amount that needs to be paid into a member’s retirement pot under the employer duties. This minimum will be introduced gradually and will rise to 8 per cent of qualifying earnings by 2018. At least some of this must be paid by the employer, though the employer can pay more, or all of it if they want to.

The Government proposed this new date on 25 January 2012. The detail of these changes will be consulted on in due course.

N

NDPB: Non-Departmental Public Body

NEST: National Employment Savings Trust

NEST Retirement Date Fund: Unless they choose a different investment option, this is where a member’s retirement pot will be invested throughout their working life. The money will be put into a fund designed to be ready for the year they expect to take their money out of NEST.

Nominated beneficiary: A person or number of people, trust, charity, club or society that a member chooses to get their retirement pot if they die before taking their money out of the scheme.

Not-for-profit: This refers to the fact that NEST has no shareholders.

O

Opt in: Workers who have not been automatically enrolled can ask to join NEST. If a worker asks their employer to enrol them, they must do so if the worker is based in the UK, is at least 16 and under 75, and is not already earning benefits in another pension scheme.

Opt out: Workers who have been automatically enrolled into NEST and those with qualifying earnings who have opted in have the right to opt out within one month of the beginning of their membership.

Opt out notice: A notice given by a member who wants to opt out of NEST.

Order: This is a short way of referring to the National Employment Savings Trust Order 2010, the legislation that established NEST.

P

PADA: Personal Accounts Delivery Authority (the predecessor body of NEST Corporation)

PAYE reference: A PAYE reference number identifies which tax office is associated with a worker and their employer. This number may change if the worker gets a new job.

Participating employer: An employer that is using NEST by agreeing to our Employer Terms and Conditions.

Pay reference period: This is how often an employer pays its workers. For example, a pay reference period might be weekly, monthly or every four weeks.

Payment schedule: A schedule that shows the rates of contributions to be paid by an employer and their workers. It also shows the date the payments will be made by.

Pension reform: When NEST refers to pension reform, we mean the new duties for employers and the new rights for workers contained in the Pensions Act 2008.

Pensions act 2008: The legislation that established the new employer duties. This means UK employers will have to provide some or all of their workers with access to a workplace pension scheme that meets certain legal requirements. Employers will also have to automatically enrol certain workers into a qualifying pension scheme and pay contributions on their behalf.

Phasing: This refers to the gradual increase of employer contributions into workers’ retirement pots starting with 1 per cent for five years, rising to 2 per cent and then 3 per cent. The Government proposed this period for this phasing on 25 January 2012. The detail of these changes will be consulted on in due course.

Q

Qualifying earnings

The earnings band used to calculate minimum contributions. Qualifying earnings are currently those between £5,035 and £33,540 in 2008 terms.

Employers can choose to base contributions on another definition of earnings if they want to.

Qualifying pension scheme: A workplace pension scheme that meets certain minimum standards.

R

Relief at source: The method of tax relief on contributions into members’ retirement pots that NEST uses.

Requirements: This relates to what NEST Corporation asks employers that use NEST to do in order to run the scheme efficiently.

Retirement income: A retirement income is the money that a member receives after they have taken their money out of NEST and bought a retirement income product, which is also known as an annuity.

Retirement pot: A retirement pot is NEST’s name for a Pension account. It includes the contributions from worker and employer, any tax relief and the investment returns.

Retirement tool: The Retirement Tool is available to NEST members six months before the date they expect to take their money out of NEST. The tool helps members to search for quotes on how much they could get when they use their pot to buy a retirement income.

Rules: This refers to the legal rules of NEST. They sit alongside the order and set out how NEST operates.

S

SIP: Statement of Investment Principles

Scheme beneficiaries: This refers both to members of a pension scheme and their nominated beneficiaries.

Sharia compliant: Something, such as a fund, that complies with Islamic law.

Single life annuity: An annuity that provides a retirement income for one person only and stops when that person dies.

Single person director: A single person director is someone who holds office as a director of a company and is the only worker in that company.

Sole scheme: A sole scheme is the only workplace pension provision offered by an employer. This could be NEST or another qualifying scheme.

Staging: The new employer duties will be applied in stages rather than from a single launch date. The largest organisations will be affected from 2012, with medium and smaller employers being affected later.

Staging date: This refers to the date when legal duties coming into effect after 2012 first require an employer to enrol some or all of their workers into a qualifying pension scheme. Employers will have different staging dates depending on their size.

State Pension: This is the amount of money you will receive from the government when you reach State Pension age. Those eligible for the full basic State Pension currently receive £102.15 per week (for 2011/12).

State Pension age

This is the age when people normally start getting their State Pension. Under current Government proposals State Pension age is set to rise gradually for women from age 60 to age 65 by 2018. This will bring it into line with the current State Pension age for men. From December 2018 State Pension age for both men and women will start to increase to reach age 66 by April 2020 (see note below).

Note - These proposals are set out in the Pensions Bill 2011.

Statement of Investment Principles (SIP): The document that sets out how a pension scheme will invest its members’ money.

T

TPR: The Pensions Regulator

Tax-registered pension scheme: For a pension scheme to qualify for tax relief it must be registered with HMRC for that purpose and comply with limits in the Finance Act 2004.

Tax relief: The money NEST claims from the government based on what members pay into their retirement pots and HMRC rules.

The trustee: The trustee of NEST is NEST Corporation. NEST Corporation is responsible for the scheme’s governance and administration.

U

V

W

WWQE: A worker without qualifying earnings.

We/us: This refers to NEST Corporation and includes the NEST scheme.

Worker: A person who works under a contract of employment or any other contract which requires them to work or perform services personally for another person or organisation.

Working day: This refers to any day other than a Saturday, Sunday, bank holiday or public holiday.

X

XML: Extensible Mark-up Language (XML) is a set of rules used to encode electronic documents. XML is designed to make it easy to transfer information online.

Y

Z