Pension auto-enrolment and Nest
By Paul Davies
Pension auto-enrolment and Nest
Nest is a low-cost workplace pension scheme set up by the government to aid auto-enrolment. Discover how Nest operates and its charges.
1. What is Nest and how does it relate to auto-enrolment?
Nest stands for National Employment Savings Trust. It is a low-cost workplace pension scheme that has an obligation to accept all employers that want to use it.
Nest was set up by the government to make the process of auto-enrolment easier for employers. You can read more about this type of pension in our guide, what is a company pension?
Nest allows employees varying levels of control over their pension arrangements. Savers can choose the 'default' fund options and allow their pot to be managed by Nest, or they can choose from the six funds and change their contribution levels to suit their circumstances.
2. Paying into Nest for auto-enrolment
Contributions into Nest will be the same as they are for other defined-contribution auto-enrolment schemes, in that you pay a percentage of your salary (currently 1%) into your Nest pension scheme. You can also pay in additional payments of £10 or more.
Other people, such as family and friends, can also pay into Nest for you. Like all other workplace pension schemes, you’ll receive tax relief from the government on your contributions. Our guide on pension tax relief has more information.
The annual contribution limit (ACL) on Nest contributions is currently £4,900.
However, some experts believe that the contribution limit is making life difficult for both employers and employees. It also means that employers can't enrol higher-earners into Nest, and means that employees are prevented from making better provisions for their retirement. Therefore, the ACL is being removed in April 2017.
3. Nest charges and restrictions for auto-enrolment
Nest's charges are relatively low. There are two charges for employees who use Nest:
- The first is a 0.3% annual management charge.
- The second charge is a 1.8% charge on each contribution. This means that for every £50 that goes in, you keep £49.10 of it. This charge is in place to pay back the government loan used to set up Nest.
One of the key restrictions on Nest is a ban on transfers in and out of the scheme. It means that it's hard for employees to consolidate their pots or take them to a new scheme if they move jobs. If you want to learn more about consolidating your pension pot, visit our guide, Should I combine my pensions?
4. Nest fund choices
There are six fund types available through Nest. The Nest Retirement Date Fund is the one that most members stick with, which works by enrolling members into the fund that targets the year they expect to take their money out of Nest.
The Retirement Date Fund aims to target investment returns in excess of inflation after all charges, over the long term. There are three phases this fund operates – foundation (for younger savers), growth and consolidation.
Nest also offers additional fund choices. These are:
- Nest Ethical Fund
- Nest Higher Risk Fund
- Nest Lower Growth Fund
- Nest Pre-retirement Fund
- Nest Sharia Fund
However, Nest expects 90% of members to stick with the Retirement Date Fund, as it is the default option.
- Last updated: December 2016
- Updated by: Paul Davies