NEST pensions - your questions answered

Fact Checked

Here is what you need to know about the government’s NEST pension scheme and how it could help you save for your retirement.

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Pensions are long term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply.

What is NEST?

NEST is a pension scheme set up by the government. NEST stands for ‘National Employment Savings Trust’.

It’s been designed so that it’s free for employers to set up, and it makes the auto enrolment process as simple as possible for everyone.

Here’s more information on auto enrolment.

Make the most of your tax-free ISA allowance.

What type of pensions are NEST pensions?

A NEST pension is a defined contribution occupational pension. This means that both you and your employer contribute to your pension while you’re working.

How does a NEST pension work?

With NEST pensions, your pension contributions are deducted via salary sacrifice. This means you don’t have to pay any tax or National Insurance on the money you contribute.

The money your employer pays into your NEST pension is paid as well as your salary. So, if you’re enrolled with NEST pensions, you’ll end up earning more than you would if you weren’t part of the scheme.

When you retire, you can use your NEST pension pot to buy an annuity that’ll give you a retirement income.

Is a NEST pension worth it? What are the benefits?

NEST pensions come with lots of benefits. It’s a good idea to think about these before you decide ‘is a NEST pension worth it?’.

The benefits include:

  • Employer contributions mean you get extra money in addition to your salary

  • You get tax relief on pension contributions

  • Someone else (NEST pensions) manages your pension for you so you don’t have to worry about your own investments

  • You can save more for your retirement, so you can enjoy it and be more comfortable in your later years

  • You could get more than what you put in (although this isn’t a guarantee)

  • You can feel reassured that NEST pensions is a government-regulated scheme.

How much do NEST pensions cost?

With NEST pensions, there are two charges you have to pay. These are:

  • A charge of 1.8% on each new contribution. For example, if you paid £2,000 into your NEST pension, the contribution charge would be £36.

  • A 0.3% annual management charge (AMC) on the total value of the fund each year. For example, if the total value of your pension was £25,000, the AMC would be £75. 

With the examples given, this means the total charge would be £111. Here is a full breakdown of NEST charges.

If you’re trying to decide ‘Is NEST pension worth it?’ then it’s a good idea to compare the costs of a NEST pension with other pensions.

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

How is your money invested with NEST pensions?

When people pay into NEST pensions, the money is added to a default ‘master’ fund. Independent trustees who look after this default fund then invest it. They invest it in a range of different companies, industries and sectors.

With NEST pensions, the fund your money is paid into is based on your estimated date of retirement. These are called Retirement Date Funds and each one is tailored, to maximise your pension for the year you retire.

You can also choose to invest in other funds, including ethical, Sharia Law and high-risk funds.

Here’s more about how your NEST pension is invested

How much can you contribute to NEST pensions?

With NEST pensions, you pay in a percentage of your salary.

There are minimum amounts set by the government. From 6 April 2019 these were set at the following percentages:

  • Employee contribution – 5% minimum

  • Employer contribution – 3% minimum

  • Total contribution – 8% minimum 

Can you opt out from a NEST pension?

Yes, you can opt out within a month if you decide you don’t want to invest in a NEST pension. However, under the Pensions Act 2008, your employer is obliged to enrol you into a pension if you’re eligible for one. And NEST pensions is obliged to accept any eligible employee into its scheme.

If you don’t have any other method of saving for your retirement, think carefully before you opt out of the NEST pensions scheme.

Speak to a pension broker about the best option for you, or you can find out what type of pension you could get here.

What happens to your NEST pension if you change jobs?

If you change job, what happens to your NEST pension depends on the scheme your new employer uses.

If the new employer uses NEST pensions, then they can just enrol you back in to the NEST pension scheme. You’ll get a form confirming you’re already a NEST member, and you’ll need to complete and return this before your details can be updated.

If the new employer doesn’t use NEST pensions, you’ll keep your retirement pot with NEST but you won’t continue to contribute through your employer. You could still make additional contributions yourself through your NEST pensions online account. But no employer will be contributing.

Every time you change job or move employers, think about your pension arrangements. Your new employer might offer a pension plan that can match your contributions, over and above those outlined in the NEST pensions scheme. If so, it’s especially important to review your pension arrangements.

Can you transfer money in and out of your NEST pension?

Yes, you can transfer your NEST pension out to another scheme, or you can transfer other pensions you have into your NEST pension.

Transfers in to your NEST pension

You can transfer existing pensions you have into your NEST pension through your online account. There are no additional fees for transferring other pensions into your NEST pension.

You can also make one-off contributions to NEST pensions online. The minimum transfer you can make is £50.

Here’s how to transfer your other pension pots into your NEST pension.

Transfers out of your NEST pension

You can only transfer money out of your NEST pension to another UK pension, or a recognised overseas scheme. You can’t withdraw money from your pension until you’re 55 years old.

Here’s more information on transferring your pension out of NEST.

How do you manage NEST pensions?

You can monitor and make changes to NEST pensions by logging on to your NEST pensions account. Through your account you can:

  • See how much is in your NEST pension pot

  • Make extra contributions to your NEST pension

  • Transfer your NEST pension to another scheme

  • Check your personal details are correct

  • Confirm where you want your money to go if you die.

If you are logging into your NEST pensions account for the first time, you’ll need your National Insurance Number and your NEST ID.

If you want to contact NEST to discuss your pension, you can send them a message through your online account. You can find other ways to get in touch with NEST here.

If you want a full review of your NEST pension and all your options, you should speak to a pension expert.

Can you use NEST pensions if you’re self-employed?

You can still save for retirement using NEST pensions if you work for yourself. Automatic enrolment won’t impact self-employed workers.

You’ll still receive the same tax benefits as employed workers but you won’t be bound by minimum contributions limits in the same way. The only rule is that you have to add at least £10 each time you make a contribution. This means you’ll 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.

If you join NEST pensions when you’re self-employed, but you later join a company as an employee, you can continue contributing to your NEST pension. If your new employer uses NEST pensions then you can add to your existing NEST pension.

For more information on using NEST pensions when you’re self-employed, visit the NEST pensions website.

When can you access your NEST pension fund?

Any money you pay into your NEST pension cannot be accessed until your 55th birthday.

Once you retire, you’ll be able to withdraw 25% of your NEST pension pot as a tax-free lump sum. This is the same as with any other personal pension fund.

Don’t forget that the earlier you draw your pension, the less money you’ll have saved for retirement. So it might be a good idea to keep paying into it for as long as you can. 

You can change your retirement age in your NEST pensions online account at any time.

Members who are over 75 can continue to be a member of Nest and pay contributions into their retirement pot, but they won’t receive tax relief on those contributions. If the total contribution to your pot from you and your employer, including any tax relief, is greater than the annual allowance of £60,000, any contributions over this limit may be taxed through your self-assessment tax return and you may have to pay more tax.

Here’s more information on the different ways you can withdraw from your pension.

Find the best personal pension plan to make your money work as hard as it can.

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