This morning the Government announced details of a quick three-month independent review, supported by the DWP, of the best way to implement automatic enrolment* into workplace pensions to increase private pension saving. The future of NEST will be part of the review.

* defined by DWP as "when an employer makes arrangements to enrol eligible jobholders into a qualifying scheme so they become an active member of that scheme. The eligible jobholder will not need to do anything in order to be automatically enrolled. An eligible jobholder who is automatically enrolled is free to opt out and can stop saving at any time, but needs to take action to do so."

The Government's coalition agreement confirmed its intention to introduce automatic enrolment. However, it is determined to 'get it right' and believes a review is justified by changes in circumstances since the Pensions Commission published its recommendations in November 2005. Developments since then have included

• The credit crunch in financial markets, the economic downturn and the fiscal deficit;
• A greater understanding of likely costs and the proposed charging structure for NEST;
• The proposed approach and profile for introducing the new employer duties and phasing in of minimum levels of mandatory contributions;
• The review of state pension age announced in this week's Budget (see also below); and
• Other changes such as the further increases in life expectancy and further decline in private sector pension coverage.

Various background documents to the review have been made available via a single page on the DWP website.

The review will be conducted by an independent team led by Paul Johnson of Frontier Economics , David Yeandle OBE of the Engineering Employers Federation and Adrian Boulding of Legal & General. The review team will contact relevant stakeholders to let them know how they can participate and contribute to the review process. The review will conclude by 30 September 2010.

The terms of reference require the team to consider whether the proposed scope for automatic enrolment strikes the right balance between the costs and benefits to both individuals and employers. In looking for the right group to automatically enrol, the review may among other things explore:

• The earnings threshold, above which automatic enrolment applies;
• The introduction of a de minimis level for contributions before automatic enrolment applies;
• The age group to which automatic enrolment should apply;
• The size of firm to which automatic enrolment should apply;
• Whether employees should be automatically enrolled on the day they start work or some later date; and
• The availability and capacity of pension providers other than NEST to serve the potential automatically enrolled population.

In the light of these conclusions, the review will advise on whether the policy of establishing NEST, as currently envisaged, is the most effective way to deliver future access to workplace pension saving and income security in retirement.

In reaching its conclusions, the review will have regard to the effectiveness of the proposed regime in:

1. Tackling pensioner poverty as quickly as possible, including among women pensioners;
2. Maximising voluntary private savings and the speed by which this objective can be achieved;
3. Minimising the administrative burdens on employers and the impact on existing provision;
4. Achieving an effective balance between the achievement of policy objectives, pace of implementation, value for money and risk; and
5. Maximising value for money for the Exchequer.

The contract for the administration of NEST, signed with Tata Consultancy Services (TCS) by PADA on 15 March 2010, requires Ministers to make a final decision by October 2010. If the £600m contract is terminated, a break fee of £25m must be paid to TCS. If it goes ahead, the contract will run for ten years, with possible extensions for a further five years.

The review should provide a critical analysis of the rationale underpinning the current approach to the programme, identifying whether alternative approaches could improve outcomes or value for money. It will also inform wider discussions on affordability and value for money in the context of the next Spending Review.

When should the State Pension Age increase to 66?

Under present legislation (PA 2007) SPA is set to rise to 66 by 2026. Following this week's Budget statement (see Aries article) the Government today announced a review of the timing of the increase, with a view to bringing the date forward. The DWP has published an "informal call for evidence" to feed into this internal review.

Responses from individuals as well as organisations are welcome and should be sent by 6 August 2010 to:

State Pension Age review team
State Pensions Division
Floor 5, Section B
Caxton House
Tothill Street
London SW1H 9NA.
Email: spa.review@dwp.gsi.gov.uk
Fax: 020 7449 5896