Understanding Nest pension schemes – what you need to know

What is a Nest pension scheme?

The National Employment Savings Trust (Nest) is an online workplace pension scheme.

A Nest pension aims to give people a simple way to save for when they retire. It forms part of the government’s auto-enrolment pension programme.

Employees join a Nest scheme through their employer. It’s a type of workplace pension. You can also have a Nest pension if you’re self-employed.

The government’s target for Nest includes:

• Low to moderate wage earners
• Employers with less than 250 staff

The thinking behind Nest is to make pensions more affordable to more people. It is hoped that Nest pensions will help to ensure a more financially comfortable retirement for more workers.

It’s a major pension product and government-backed. Nest is the UK’s largest pension provider. It has 12 million members and it handles nearly £30 billion of people’s pension money.

That’s why a Nest-egg could be a great part of your retirement planning.

How does a Nest pension scheme work?

Nest pensions are designed to be easy to use. This encourages people to save for their retirement.

Nest pensions are known as a defined contribution type of pension. This is a type of workplace pension. As well as your contributions, your employer pays in. You also get tax relief on money going into the retirement pot.

Employers must allow their employees to start a Nest pension if they want to. This usually happens automatically with auto-enrolment.

The scheme works by:

• Employers paying into the employee’s Nest account
• Employees paying in as well
• Minimum contribution levels are set based on a percentage of the employee’s wages or salary

Other points about a Net pension to bear in mind are:

• You can take your Nest pension with you if you change jobs
• You can opt out of your Nest pension if you want
• You can access your Nest pension when you retire

Nest pension contributions

There is a minimum Nest contribution if you earn above a certain amount. This is set at 8% of your qualifying earnings.

This is divided as follows:

• Employee contributes 4%
• Employer contributes 3%
• Tax relief is 1%

Both employer and employee must then make contributions. You can contribute more if you want. However, you may have to pay additional tax if your contributions go over your personal pension allowance.

You can change the amount you contribute whenever you want. So, a Nest pension can be a great way to save more into your pension when you can best afford it.

Nest pension charges

The good news is that there are no charges for setting up and using a Nest pension.

However, there will be charges based on how much you contribute to your Nest pension. These are:

• 1.8% of each contribution
• 0.3% annual management charge each year on the value of your pension

For example, if you paid £1,000 into your Nest pension then you’d pay £18. After a year, if you had saved £8,000 in your Nest pension, then the annual management charge would be £24. That’s £42 in total.

Pros and cons of a Nest pension

Advantages of a Nest pension

• Government-backed and regulated
• Free to set it up
• Low cost to use
• Employers contribute as well as employees to boost the pension pot
• Tax relief means the government also contributes to your pension
• Your pension is managed for you by Nest

Disadvantages of a Nest pension

• You have to pay a charge whenever you add to your pension
• You have to pay a yearly management charge
• The returns might be lower than other pension products

FAQs

Is NEST a good pension?

Yes. That’s because as well as the money you put in from your wages or salary, your employer contributes something and you get tax relief on the contributions.

Is NEST an occupational pension scheme?

Yes. It is a type of workplace pension scheme that’s also called a defined contribution occupational pension.

Is a NEST pension the same as a State pension?

No. A State pension is based on your National Insurance contributions. A Nest pension is a workplace pension scheme with contributions from you, your employer and the benefit of tax relief on contributions.

Should I opt out of NEST?

That’s up to you. You can opt out easily by contacting Nest. But bear in mind that your employer contributes to your pension under Nest and you also get tax relief on contributions. It’s probably best to talk with a pension adviser before choosing to opt out of Nest.

DISCLAIMER
This is information – not financial advice or recommendation. The content and materials featured or linked to on this blog are for your information and education only and are not intended to address your particular personal requirements. The information does not constitute financial advice or recommendation and should not be considered as such. Checkatrade website is not regulated by the Financial Conduct Authority (FCA), its authors are not financial advisors, and it is therefore not authorised to offer financial advice.
Always do your own research and seek independent financial advice when required. Any arrangement made between you and any third party named or linked to from the site is at your sole risk and responsibility. Checkatrade blog and its associated writers assume no liability for your actions.