What is NEST?

NEST is a defined contribution occupational pension scheme backed by the government.

Both you and your employer will contribute to your pension while you are working.

Then, when you retire you will be able to use your NEST pension pot to purchase an annuity that will provide with a retirement income.

Your pension contributions will be deducted via salary sacrifice so you will not pay any tax or National Insurance on the money you contribute.

The money paid into your pension by your employer will need to be in addition to your salary so effectively by participating you are earning a little more than you otherwise would.

While NEST is not the only option for businesses who want to fulfil their auto enrolment obligations, millions of people in the UK are likely to use NEST as the home of their retirement savings and many will be automatically enrolled in the scheme.

How much will NEST cost?

As with any occupational pension, there will be an annual management charge deducted to cover the cost of managing your funds.

At present this annual charge has been set at 0.3%.

However, there will be an additional annual 1.8% fee applied initially to cover the set up cost of the NEST scheme.

This additional charge is only temporary but exactly how long this additional charge will be applied has not yet been confirmed.

For a full breakdown of NEST charges and an illustration of how much it might cost in real terms visit the NEST website.

To compare the costs of the NEST pension scheme to other personal pensions you can use our pension comparison table which lists the current management fees of all the main pension funds.

Will you be able to control where your money is invested?

Initially, any money paid into a NEST pension will be amalgamated in a default fund which will then be invested in a range of different companies, industries and sectors.

The exact fund your money will be paid into is likely to be based on your estimated date of retirement. This is so the investment choices can be tailored to suit your pension needs (either to maximise growth or to protect your capital) depending on how soon you are likely to want to draw your money.

There are now a selection of alternative funds, including Ethical, Sharia Law and High-Risk funds available, you can find more details on the NEST website.

Can you opt out of NEST?

Although employers will be obliged to enrol any eligible staff into a pension scheme you are still free to opt withing a month-out if you decide that you do not wish to participate.

However, if opting out will leave you without any provisions for your retirement you will need to think carefully about how you will pay for the lifestyle you want when you stop working.

If you are unsure if you should be saving for your retirement and want more information, read our guide: Should I Get a Pension?

What happens if you move employer?

One of the perceived benefits of saving for retirement through the NEST scheme is that you will be able to pay into it throughout your working life regardless of whether you switch employers.

Of course, every time you change job roles or move employers it makes sense to consider your pension arrangements, especially if you new employer offers an independent pension plan and offers to match your contributions above those outlined in the NEST scheme.

Can money be moved in & out of NEST?

The short answer to this question is no.

At present there are no plans to allow you to transfer money in or out of a NEST account, unless very specific circumstances are met.

Initially this means once you have paid money into a NEST pension scheme it is locked there until you retire.

The government has announced that it will review this restriction in 2017.

Can you save in NEST if you are Self Employed?

Although automatic enrolment will not impact self employed workers, if you do work for yourself you can still save for retirement using NEST.

You will still receive the same tax benefits as employed workers but will not be bound by minimum contributions limits so you will have more flexibility.

However, as no one will be making contributions on your behalf you should consider all your retirement savings options before you sign up.

For more information on using NEST when you are self employed visit the NEST website.

When will you be able to access your NEST fund?

The NEST scheme has been set up specifically to encourage everyone to save for their retirement. For this reason any money you pay into your NEST pension cannot be accessed until you 55th birthday.

Once you retire you will be able to draw 25% of your pension pot as a tax free lump sum - this is the same as with any other personal pension fund.

Whatever you decide to do with your NEST fund you must take all of the money out of the scheme by your 75th birthday.

For more information on what to do with your pension fund you can read our guide: Should You Take a 25% Tax Free Lump Sum Out of Your Pension Fund? or visit the NEST website.