NEST (National Employment Savings Trust)

NEST is a simple, low-cost pension scheme initiated by the British government but operates at arm's length and is accountable to Parliament through the Department for Work and Pensions (DWP). NEST will begins later this year with a "phased in" approach. With few exceptions employees will be automatically enrolled into this new workplace pension scheme.

This new scheme will have profound implications for USC's working in the U.K.

Comments anyone? Normal happy retirement plan, or a trust with all it's nasty reporting?
 

Thanks for that it's the first I've heard about NEST. The new mandatory nature of retirement pensions in the UK will certainly have issues for US citizens.

I wonder if there will be an increased audit chance if you invest in the Sharia Fund?

Does NEST's status as a public body affect anything? It is a workplace pension scheme rather than a personal pension so is that distinction important.

As you can manage your investments choices FBAR and FATCA are definitely in play.

Are the corporation's funds PFIC?

NEST is a corporation that provides a retirement scheme that employers and employees can pay into so I suppose you could apply the test of if the employer invests the majority of the money it's a pension scheme covered by the treaty, if the investor contributes the most its a foreign grantor trust and if the investment funds are PFICs you have the worst case scenario.

All good questions nun, I have no idea of an answers though. I just hope for the sake of sanity, this new scheme is treated like an approved retirement plan. As it's a U.K governmental initiative,the best scenario would be treatment as a Brit old age pension. No FBAR,8938, PFIC 3520 (A)...

All good questions nun, I have no idea of an answers though. I just hope for the sake of sanity, this new scheme is treated like an approved retirement plan. As it's a U.K governmental initiative,the best scenario would be treatment as a Brit old age pension. No FBAR,8938, PFIC 3520 (A)...

I can't imagine that, social security type pensions are totally different. Best case I can see is that if the employee contributes less than the employer and the treaty exemption can be claimed. Otherwise you'll have 3520 and 8621 to do. Either way 8938 will be an issue if you meet the threshold.

Best case I can see is that if the employee contributes less than the employer and the treaty exemption can be claimed.

According to this BBC article:

"Employers will start paying a minimum of 1% of qualifying earnings, rising to a minimum of 3% by 2017.

Employees will start paying a minimum of 1% of their qualifying earnings, rising to a minimum of 5% by 2017."

So it may in fact be mandatory for the individual to make more contributions than their employer, making the treaty exemption impossible.

I too would wonder if the fact that NEST contributions are required by law would result in its being treated as a social security scheme rather than a pension.

Canadian Banks are advising their customers who have TFSAs (similar to ISAs?) or RRSPs (similar to SIPPs or personal plans?) to file 3250. NEST would be different to either of these, I believe.

The most interesting example is the Swiss '2nd Pillar' scheme, since it is mandated. (It appears it's a 50/50 contribution.)

http://www.englishforum.ch/finance-banking-taxation/46251-swiss-pensions-consolidated-summary.html
Post #15 from andy02, is interesting also.

The person who would know the most about this is evilshell.

evilshell, are you out there?

Canadian Banks are advising their customers who have TFSAs (similar to ISAs?) or RRSPs (similar to SIPPs or personal plans?) to file 3250. NEST would be different to either of these, I believe.

Why would NEST be different? It's not funded from taxation like a social security plan. It looks like a SIPP to me with a limited number of fund choices. NEST is mandatory for the employer if they don't offer another pension and the employee is automatically enrolled, but the employee can opt-out. NEST is the trustee, but you get to make your own investment choices, so it's very similar to US deferred compensation plans like 401k, but with automatic enrollment and minimums contributions set by law. (sounds unconstitutional to me ) So why would you treat NEST any differently from a SIPP?

Sorry nun, I was thinking of the mandate (in relation to the Canadian plans). At certain points, you are automatically enrolled in NEST. You have no choice.

http://www.direct.gov.uk/en/Pensionsandretirementplanning/Companyandpersonalpensions/WorkplacePensions/DG_200640

But you're right, you can opt out.

http://www.direct.gov.uk/en/Pensionsandretirementplanning/Companyandpersonalpensions/WorkplacePensions/DG_200723

This makes it unlike the 2nd pillar Swiss plan, which if I understand correctly, is mandatory if you're of a certain income level and working for an employer, with no opt out.

I wonder if NEST requires an employer to contribute the same percentage for all it's employees or if an employee can individually negotiate an amount above the minimum. If they can do the latter it might be good to get a reduced salary in exchange for a larger employer contribution so that it's more than 50% of the annual minimum. Of course you could take the other tack and use FTC to pay tax on the contributions up front and build up a nice US tax free basis and probably pay someone to file your 3520s etc.

IMHO the UK spectrum of retirement funds is badly covered in the treaty when compared to the US funds included. My IRAs, 403b etc definitely come under the treaty even though I've paid more into them than any of my employers and they are far more similar to UK personal pensions (eg SIPPs) and NEST than a traditional employer sponsored final salary scheme.

I think this reflects the more wide spread use of self directed defined contribution retirement plans in the US vs the UK when the treaty was drafted. Now that personal pensions are increasingly replacing traditional pension plans in the UK the treaty looks very out of date.

FYI, the initial expenses NEST charges are ridiculous 2.1% . There is some language about these being reduced as the plan gets bigger, but they dwarf my 0.07% expense ratio on my IRA. It's just another example of how the UK investment industry rips off the investor. Also I now know that Exxon mobil is a Sharia compliant company

http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/sharia-fund-factsheet-sept2011,PDF.pdf

I did read that an employer can't for example offer a company car in exchange for a reduction in NEST contributions.

The fees are high... With retirement pension schemes both in the U.S and U.K, it's something I will opt out of should I find myself in the position of auto-enrolment.

An article from SAGA,(an organisation aimed at those 50+), talks of it's concerns with auto-enrolment for older workers, especially given the fee's associated and time to retirement.

The U.K government has a bee in it's bonnet about personal/workplace pensions, as the take up amongst younger people is pitiful. I believe this initiative will be suitable to those younger people that have made no provision for retirement.

http://www.saga.co.UK/newsroom/pressurises/2012/mar/.asp

The fees are high... With retirement pension schemes both in the U.S and U.K, it's something I will opt out of should I find myself in the position of auto-enrolment.

I find US fees to be far less than in the UK. For my 457 and 403b plans I pay 0.15% and 0.07% expense ratios.

Apologies, for digging up an old topic.

Has there been any acknowledgement on this type of pension whether it would be considered a trust or to treat it as a regular pension and note it on taxes at distribution?

It seems that since it's fairly recent within the past 10 years there has not been much talk about it in relation to US taxes.