Want to know more about the NEST pension, including how it works, what it charges, and whether you can open an account? All the answers are in this very handy NEST pension review.
If you aren’t thinking about investment for retirement, you’re falling short in your financial planning.
You don’t want to be working until the day you die, do you? Will the State Pension be enough to provide you with a comfortable lifestyle when you’re no longer working?
The answer to these two questions is ‘no’. Which is why schemes like the NEST pension are so important.
“What’s NEST?” you ask.
Read on and learn all you need to know – what it is, how it works, who it’s for, how much you can pay in, and more.
TLDR: What Is A NEST Pension?
A NEST pension is a government-backed, accessible, and flexible way to save for your retirement. It offers employees an easy route to auto-enrolment workplace pensions, and can be used by the self- employed, too.
With benefits like employer contributions, tax relief, and low fees, NEST is designed to help you improve your personal pension pot.
However, you’ll need to be aware of charges on your contributions, though annual management charges are low. You won’t have as wide an investment choice as some alternatives, and it’s best to consider a NEST pension as part of a more comprehensive retirement investment strategy.
*Capital at risk
NEST Pensions Pros & Cons
| Pros of NEST Pensions | Cons of NEST Pensions |
|---|---|
| Accessibility and Inclusivity: NEST is made for a wide range of workers, including you, regardless of your employment status. | Charges on Contributions: Although designed to keep costs low, the 1.8% charge on contributions might reduce your immediate investment amount. |
| Government Backing: Like the NHS, NEST has robust support from the government, offering you a layer of security. | Limited Fund Choices: You might find NEST’s selection of investment funds limited compared to some private providers, potentially not suiting all your investment preferences. |
| Automatic Enrollment: If you meet a certain criteria, you’re automatically enrolled, simplifying your start in saving for retirement. | Transfer Restrictions: If you’re considering transferring pensions, NEST’s limitations, especially from defined benefit schemes, could restrict your options. |
| Tax Relief on Contributions: You benefit from tax relief on your contributions, effectively reducing the cost of saving for retirement. | Complexity for Divorcees: If you’re dealing with a pension share from a divorce, navigating NEST can add complexity to your retirement planning. |
| Employer Contributions: Your NEST pension is significantly boosted by contributions from your employer, on top of your own. | Potential for Over-Reliance: The ease and accessibility of NEST might lead to over-reliance on it for retirement savings, which may not fully meet all your retirement goals. |
| Low Fees: NEST’s low fees on investments mean more of your contributions go into your pension pot rather than being consumed by management expenses. | |
| Flexibility with Contributions: Whether you’re moving jobs, becoming self-employed, or even unemployed, you can continue making contributions to your NEST pension. | |
| Investment Options: You can choose from several funds, including ethical and Sharia options, allowing for personalisation based on your risk tolerance and values. | |
| Portability: You can continue your NEST pension across different employers that use NEST, making it easier to consolidate your retirement savings. |
*Capital at risk
What Is A NEST Pension?
NEST was conceived with the realisation that the State Pension just isn’t sustainable.
Together with increasing the age at which the State Pension can be taken, the government began to introduce new legislation to address the pension crisis.
With the aim of easing the burden on the State and increasing the average pension pot in the UK, new laws have increased the ways in which you can plan for your retirement, take pension benefits, and made it compulsory for employers to provide workplace pensions.
Act of this pensions revolution, the government set up the National Employment Savings Trust (NEST) in 2010. Its aim was to help employers offer a low-cost, accessible pension scheme with auto-enrolment into workplace pensions.
Since its inception, NEST has evolved into a scheme that can also be used by the self-employed, as well as being made available to those who have a share of an ex-partner’s retirement pot because of a divorce settlement.
In terms of structure, NEST is more like the NHS or BBC than a private pension provider – a public service backed by the government.
How Does NEST Work?
NEST is what is known as a master trust. It’s a defined contribution pension (what you get out is dependent upon what you put in – including employer contributions and tax relief – and the growth of the funds in which your contributions are invested).
A master trust allows multiple employers to use it, which means you could have the same pension as someone working for a different company in a different part of the country.
This doesn’t mean your employer relinquishes all control to the trust. Indeed, your employer will make all the major decisions, such as how much you and they contribute, what those contributions are invested in, and the benefits provided by the pension scheme.
Why Do Employers Use NEST?
NEST’s ease of use and flexibility are very attractive to many employers.
It can be used as a sole pension scheme or as part of a menu of pension scheme choices for employees. An employer can manage a NEST pension themselves, or they can use an accountant or payroll provider to manage it for them.
On top of these benefits, NEST is a not-for-profit scheme: it’s free for employers, and charges low fees on investments – and low fees translate into more of each contribution being invested, which flows through to financial outcomes.
Can You Contribute To A NEST pension?
Though NEST’s primary purpose is to provide a platform for workplace pensions, the criteria for eligibility extends beyond those who are employed.
NEST For Employees
If you are eligible for enrolment into your employer’s workplace pension scheme, you will be auto-enrolled provided you are:
- At least 22 years old
- Below State Pension age
- Earning at least £10,000 per year from your job
If you aren’t eligible for auto-enrolment, you might still be able to join your company’s workplace pension scheme (you should speak to your HR department to find out more).
A workplace pension like NEST is a fantastic way to boost your retirement savings. Not only do you contribute, but you benefit from tax relief on your contributions and your employer contributes on your behalf, too. It’s a win/win/win in pension planning!
Example:
- You are a basic rate taxpayer:
- You contribute 4% of your salary
- The government adds 1% (20% tax relief)
- Your employer contributes 2x your contribution (8%)
- Total contribution is 13% of your gross salary!
NEST For The Self-Employed & Others
If you’re self-employed, or you aren’t eligible for auto-enrolment into a NEST pension, you may also be able to join NEST.
You’ll be able to benefit from the advantages of contributing to a NEST pension, including tax relief on your contributions. You’ll need to contribute a minimum of £10 each time you pay in.
NEST For The Divorced
When it comes to divorce, NEST pensions fall under the same rules as other types of pension scheme in the UK: they are governed by a legal framework that aims to ensure fair distribution of marital assets.
Most commonly, pensions are dealt with by a Pension Sharing Order, which transfers part of one partner’s pension (including a NEST pension) to the other partner.
You can join NEST if you have received a pension settlement because of divorce and continue to contribute to the NEST pension through to when you take benefits.
(Tip: Always seek legal advice with regard to pensions when you are divorcing or are divorced.)
*Capital at risk
Can I Contribute Into My Partner’s NEST Pension?
Yes, you can!
The rules let spouses, partners, and certain others pay contributions into a NEST pension pot – a great way of maximising your partner’s retirement investment.
I’m Unemployed – Can I Contribute To A NEST Pension?
If you have a NEST pension and become unemployed, stop working, or change jobs to an employer that doesn’t offer a NEST pension, you can continue to pay into your NEST pension scheme until you start to take benefits from your pension.
How Is A NEST Pension Invested?
NEST works a little like a lifestyle fund. When you join NEST, you will be automatically invested in what is known as a ‘NEST Retirement Date Fund’. This is designed to rebalance the funds in which your contributions are invested as you get nearer to your retirement date.
In simple terms, investment risk will be reduced the older you get. However, you aren’t locked into this, and can self-select from seven funds, each of which is professionally managed by a team of in-house investment managers:
- NEST Retirement Date Fund
- NEST Ethical Fund
- NEST Lower Growth Fund
- NEST Higher Risk Fund
- NEST Sharia Fund
- NEST Pre-Retirement Fund
- NEST Guided Retirement Fund
The last two of these funds are only available if you are approaching retirement age.
How Much Does A NEST Pension Cost?
While NEST is a non-profit, its costs are paid for by charges levied on its members. You’ll pay an annual management charge (AMC) of 0.3%, plus a one-off charge of 1.8% on contributions.
The monthly contribution fee is quite unusual, though the AMC is relatively low. Here are some examples of how these charges stack up:
| Monthly Contribution | Value of NEST Pension | Charge on Contribution | Charge on Value of NEST Pension | Total Charges |
| £50 | £10,000 | £10.80 | £30.00 | £40.80 |
| £100 | £25,000 | £21.60 | £75.00 | £96.60 |
| £200 | £25,000 | £43.20 | £75.00 | £118.20 |
| £250 | £50,000 | £54.00 | £150.00 | £204.00 |
| £500 | £100,000 | £108.00 | £300.00 | £408.00 |
These charges compare competitively with most other providers. For example, if you contribute £100 per month with a £25,000 fund value, you will pay annual fees of:
- £96.80 with NEST
- £125.00 with PensionBee’s Tracker Plan
- £187.50 with Penfold’s Standard Plan
However, if you contribute £250 per month with a £25,000 fund value, the NEST annual fee will rise to £129.
How Does A Change In Employment Status Affect A NEST pension?
Who stays with the same employer their entire career today? As your employment status changes, you’ll find that a NEST pension’s flexibility is crucial.
Changing Jobs to an Employer that Uses NEST
If you move to a new job and your new employer also uses NEST, you can continue to contribute to your NEST pension. Simply tell your new employer about your existing NEST pension, and they can direct contributions into it.
Changing Jobs to an Employer That Doesn’t Use NEST
In this case, you can make additional contributions through your NEST account or leave it to grow.
You could also elect to transfer your NEST pension pot into your new employer’s scheme, or open a Self-Invested Pension Plan (SIPP) and transfer into that.
Moving From Self-Employment To Being Employed
If you were contributing to a NEST pension as a self-employed person and become employed, you can continue to contribute via your employer.
Moving From Being Employed To Being Self-Employed
Moving to self-employment doesn’t mean you have to stop contributing to your NEST pension. As a self-employed person, you can continue making contributions directly to your NEST account.
Of course, you will become responsible for managing your contributions and ensuring that they comply with contribution limits.
Are There Any Restrictions On Transfers Into NEST Pensions?
If you are considering transferring existing pensions into NEST, you can transfer from any UK-based pension scheme providing it is transferred via pension or credit transfer, or early leaver cash.
NEST does not accept transfers from defined benefits schemes. The minim transfer amount is £50.
Are There Any Restrictions On Transfers Out Of NEST Pensions?
You can only transfer out of a NEST pension if you have stopped contributing into it. NEST won’t charge you for doing so.
When Can I Take Money Out Of A NEST Pension?
When you can start to take benefits from your NEST pension depends upon how you (or your employer) have set it up. Currently:
- You can ask NEST to set your retirement date at any age from age 55.
- If you haven’t set a retirement date, it will usually be set at your State retirement age.
- If you join NEST after age 65 or your State retirement age, you can choose a NEST retirement date (if you don’t, it will be set at 75).
- If you are over 75, it will be set at 105.
*Capital at risk
Alternatives To NEST For Your Pension Planning
NEST plays an important role in the pension landscape, especially for auto-enrolment, but there are alternatives. These include:
Personal Pensions
Personal pensions are private pension schemes managed by financial institutions like insurance companies, banks, or investment firms. They are a flexible choice for anyone, regardless of your employment status.
- Pros: Broad investment choices; potential for higher returns; flexibility in contributions.
- Cons: Higher fees compared to NEST and complexity in choosing investments.
Stakeholder Pensions
Stakeholder pensions are a type of personal pension designed to be more accessible and straightforward. With capped charges and no penalties for altering contributions, they can be attractive.
- Pros: Capped charges; no penalties for varying contributions; easy to understand.
- Cons: Limited investment options compared to other personal pensions.
Self-Invested Personal Pensions (SIPPs)
SIPPs give you the most control over your pension investments. You can invest in a wide range of assets, including shares, bonds, and funds.
If you are an experienced or confident investor, or happy to work with a financial advisor or robo-advisor, a SIPP could be the way to go.
- Pros: Wide investment choice; control over your investment strategy; and potential tax advantages.
- Cons: Higher fees and complexity; more suitable for experienced investors.
Non-NEST Workplace Pensions
Most employers offer a workplace pension, and many are non-NEST. These are usually defined contribution schemes, though can be defined benefits.
- Pros: Employer contributions enhance your retirement savings; potential for employer-specific benefits.
- Cons: Lack of portability if you change jobs; varying levels of flexibility and investment choice.
Lifetime ISAs (LISAs)
Not strictly a pension scheme, but can be used for retirement planning. You can contribute a maximum of £4,000 per year until you are 50, with the government adding a 25% bonus to your savings.
- Pros: Government bonus; flexibility to use towards a first home or retirement; tax-free growth.
- Cons: Contribution limits; penalty for withdrawal if not used for a first home or retirement after age 60; does not include employer contributions.
NEST Pension – The Bottom Line
NEST is an important player in the UK pensions landscape. It offers a government-backed, flexible, and inclusive option for investing toward your retirement. For employers, it delivers a simple solution to providing the required workplace pension with auto-enrolment.
However, while total annual fees are competitive, you should be mindful that charges on your contributions reduce the amount invested. The investment choices, while professionally managed, are limited compared to alternatives.
If you are considering opening a NEST pension, transferring in or out of one, or taking benefits from an existing NEST pension, it is always advisable to seek professional advice and take a holistic approach. Is it ever a good thing to put all your eggs in one nest-egg basket?
*Capital at risk