A guide to the largest pension scheme in the UK - Nest

Nest refers to the National Employment Savings Trust, which was set up in 2010 and is the largest pension provider in the UK. 

Nest is a public service body, similar to the BBC or the NHS, and was established by the government to help employers meet their auto-enrolment duties for their employees. 

How do Nest pensions work?

Although a government scheme, Nest differs from a state pension in that it is funded, where the money comes from employers and employees paying in and not from taxpayers.

Nest pensions operate as a defined contribution scheme, where both you and your employer contribute to a pot of money that is invested to grow over time. 

The scheme is a master trust, allowing multiple employers to use it. Trustees manage your savings on your behalf, while your employer can determine various aspects, including contributions, limits, benefits, and investment choices.

Upon reaching the age of 55, you can access your Nest savings. When you retire, you have options such as taking a regular income through a drawdown or purchasing an annuity. 

Additionally, you can choose to withdraw 25% of the pot as a tax-free lump sum. 

It's important to note that the scheme closes to you at the age of 75, so by then, you must have accessed your pension pot either through a drawdown or by buying an annuity.

How much do I have to contribute to a Nest pension?

The legal minimum contribution is 8% of your qualifying earnings.

Your employer would pay 3% of this, whilst you would pay 4% of your pay. The government would contribute 1% through tax relief. 

Qualifying earnings for the tax year 2023/24 is anything between £6,240 and £50,270. 

For example, if you earned £30,000 a year, your qualifying earnings would be £23,760 as that’s how much of your earnings are within the range.

What are the costs and charges of running a Nest pension?

The best feature of Nest is the low fees. You won't be charged for services such as transferring your pot, changing your retirement date, or switching your investment fund. 

This transparent and straightforward charging structure aims to provide a great value workplace pension for all members.

There is an annual management fee of 0.3% and a 1.8% fee each time you contribute to the scheme.

Not including your employer's contribution, if your monthly contribution to your pension is £100, just £1.80 is deducted as the monthly Nest fee. The Government will add a 25% tax top up of £24.55. (20% tax relief).

How are funds invested in Nest?

In the third quarter report 2023, Nest reported total assets under management of £33 billion, with 12.5 million members. 3

The default funds, where 99% of the funds invested are split into low risk funds for those that are in retirement and growth funds, for those that are contributing to the scheme during their working life. 

Although inflation has been higher recently in the UK, these funds have seen some pretty good growth numbers.

For example, over the past 10 years, the Nest 2040 Growth Fund reported an annualised 8 percent growth, whilst the Nest 2023 Retirement Fund reported a five percent growth.

The funds invest money into markets like property, renewable energy, and company shares like PayPal and Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and more.

If you don't want the default funds, you can choose to invest for different beliefs, faiths or risk appetites such as:

• Nest Ethical Fund
• Nest Sharia Fund
• Nest Higher Risk Fund
• Nest Lower Growth Fund

 

If you'd like to take on more investment risk to boost your returns, such as the Nest Higher Risk fund, you can do so; however, it is always a good idea to check with a financial advisor to see if it matches your risk profile and to discuss what your options are.

What happens when I move jobs?

When you move jobs, it depends on whether the new employer uses Nest. If they do, you can leave your pension savings with Nest and continue to contribute to your new employer's scheme.

If the employer does not use Nest, you can transfer to your new employer's scheme or transfer to a personal pension. This allows you to maintain control over your pension savings.

Alternatively, you can choose to leave your Nest pension as it is. It will be invested but inactive or frozen. You can reactivate it when you have a new employer or move to a personal pension at a later date.

What happens when you die?

You can designate a beneficiary who will receive your pension in the event of your death. The pot will be paid to them tax free if you die before you’re 75.

If you die after reaching the age of 75, the pot may be subject to income tax. Your beneficiaries will be charged income tax on the inherited pension assets.

Can you transfer out of Nest?

You can transfer Nest to the following, so long as the scheme is deferred or once you have stopped contributing. 

• Personal pension plan
• Group personal pension
• Occupational scheme operated by trustees
• SIPP (Self-invested personal pension)
• SSAS (Small self-administered schemes)
• Stakeholder pension
• A qualifying recognised overseas pension scheme (QROPS)

 

You can only transfer to a pension scheme recognised by HMRC.

What are the alternatives to a Nest pension?

As an employer, the following are alternative auto-enrolment schemes to Nest suitable for small firms: 

Creative Pension Trust

Cushon Master Trust

The Lewis Workplace Pension Trust

NOW: Pensions

Penfold Pension

The People’s Pension

Smart Pension Master Trust

Standard Life Workplace Pension

True Potential Investments

As an employee, if you prefer an alternative to a Nest pension. Before choosing a different pension, you should speak to your employer first to find out if they’d be happy to contribute to a personal scheme instead, otherwise, you may lose out on the employer’s contribution:

Personal pension

A personal pension is a scheme where only you contribute. It may offer more control over your contributions and investment choices compared to a Nest pension.

Self-invested personal pension (SIPP)

A SIPP allows you to have greater control over your investments. You can decide how and where to invest your pension pot. This option is suitable for those who are experienced in managing their investments or are willing to pay for a fund manager.

Stakeholder pension

Stakeholder pensions are defined contribution schemes that employers can offer, and individuals can also take out personally. These pensions offer flexibility in the amount you contribute, but you may have less choice over where your pension pot is invested compared to a SIPP.

How to contact Nest pensions

You can contact Nest by telephoning 0300 020 0090. 

They have a live chat which will provide quick answers to your questions. The service is available from 8 am to 8 pm Monday to Sunday, except on public and bank holidays. You can visit contact page here.

Get expert advice

For advice on your Nest pension and any other pensions you have. Let Regulated Advice match you with a financial advisor for expert advice.