The NEST pension scheme explained
As an employee, there are so many pension schemes that will likely be available to you, and different providers and workplaces will offer you a variety of pensions depending on numerous different factors.
One of the most common pensions available to employees is a Nest workplace pension which offers staff a way to save for their retirement.
In our guide below, we discuss everything you need to know about Nest pension providers, Nest employer contributions and Nest pension percentages.
What does Nest stand for?
Nest stands for National Employment Savings Trust.
What is a Nest pension?
A Nest pension is a type of workplace pension that has an obligation to accept everyone who applies for one. A Nest government pension makes it easier for employees to auto-enroll into a pension scheme, so it takes the hassle and stress off the employees having to work out what to do with a pension themselves.
You might like: A complete guide to pensions and how they work
How do Nest pensions work?
A Nest pension is known as a master trust which is a type of defined contribution pension that is used by many employees. There are independent trustees who look after employees’ savings on their behalf and so you might have the same pension as your friend or neighbour, for example, even if you work for completely different companies.
The master trust is in charge of the pension overall, but employers are still able to make decisions regarding investments, contributions and employee benefits.
Is Nest a good pension scheme?
Nest pensions are considered to be good pensions in terms of them being low-risk. However, as usually is the case with low-risk investments, they usually also have a fairly low reward fund performance, so you won’t have as much money in your pension fund as you could with a self-invested private pension plan, for example.
If you’re looking for a pension scheme that’s low-risk and fairly low-return however, Nest pensions are probably one of the best ways to save money for retirement.
Should I have a private pension as well as my Nest pension?
Choosing to have two pensions to help you save for retirement, such as a Nest pension and a private pension, is an entirely personal decision.
You certainly don’t need to have both types of pensions, but if you want to have as much money as possible available to you when you retire, you might want to look into both options.
Can I take my money out of Nest?
You can transfer money out of your Nest pension into another UK pension pot, but you can’t withdraw money from Nest until you’re 55.
Can I cancel my Nest pension?
Nest has two different protocols for cancelling; you can either stop your contributions or you can opt-out.
Stopping your Nest contributions means your Nest account remains inactive and any contributions that you’ve made into your Nest retirement pot will stay in the pot until you take your benefits from age 55 or if you transfer it to another pension scheme.
Opting out of Nest means that your account gets closed entirely. If you choose to opt-out, it means that you’ll be losing the benefit of having your employer contribute to your pension as the Nest pension scheme is a defined contribution pension scheme.
What percentage do Nest pensions take?
Nest's charges are relatively low, especially compared to some other types of pension providers and there are two types of fees incurred by employees who use Nest.
There is an annual charge of 0.3% for management fees and a 1.8% charge on each contribution. For example, for every £50 that you contribute towards your Nest pension, £49.10 is actually paid into your pension. The 1.8% charge is used to pay back the government loan that was originally used to set up Nest.
Your employer is also expected to make a contribution of at least 3% each time you get paid (whether that’s weekly, fortnightly or monthly) and you will be expected to contribute at least 5% of your salary.
Where can I invest my pension with Nest?
There are numerous types of funds that are available for you to invest in with Nest, including:
- Nest Retirement Date Fund
- Nest Ethical Fund
- Nest Higher Risk Fund
- Nest Lower Growth Fund
- Nest Pre-retirement Fund
- Nest Sharia Fund
- Nest Guided Retirement Fund
The Nest Retirement Date Fund is the most common and is usually the one that most members choose to stick with throughout their Nest pension scheme contributions. It works by enrolling workers into the fund that targets the year that they intend to take their money out of their Nest pension pot (the date they plan on retiring). Its intention is to target investment returns in excess of inflation after all charges have been accounted for.
The pros and cons of having a Nest pension
Of course, just like every other pension scheme available, Nest has both benefits and drawbacks that you should be aware of before deciding whether you want to join one.
- It’s government-backed and relatively low-risk, so your money should be safe in a Nest pension.
- Relatively low management charge of 1.8% a year.
- The Nest website is easy to understand and use and you can find all the information you need about your Nest pension there.
- There are limited investment options to choose from, as well as limited retirement options.
- Some people have criticised Nest’s customer service.
How do I find out the value of my Nest pension?
It’s incredibly easy to find out the value of your Nest pension as all you have to do is log in to your online Nest account and your current pot value will be displayed on your dashboard.
You can also use Nest’s Pension Calculator to work out how much your Nest pension fund could be worth when you retire.
What will happen to my Nest pension when I retire?
Once you retire, you can take 25% of your Nest pension pot as a tax-free lump sum and anything after that will be taxable.