I recently gave a retirement planning presentation to the staff of a local company on pensions. The employer has enrolled their employees into the government workplace pension scheme called NEST which stands for the National Employment Savings Trust.  During my presentation it was evident that few employees really understood their NEST pension scheme, most were indifferent about it and some of them had some real concerns about it.  Let me explain why.

 

 

 

 

The NEST workplace pension scheme is government backed which makes it a secure scheme.  It has a relatively low annual management charge of just 0.3% but an unusually high charge on each pension contribution of 1.8%. This means that in the early years it is not the most competitive in terms of charges but over periods of 10 years or more it becomes relatively low cost. There is no charge for a transfer into NEST.

 

However, like most things in life you get what you pay for. One lady in the audience was about to retire the very next day and she was confused about how to take her pension because NEST doesn’t offer advice to retirees on their pension options, nor do they offer annuities. So, this lady didn’t know where to turn and she was very concerned.

 

The other major disadvantage of NEST is that it only offers very little funds choice.

 

Another issue is that it doesn’t offer the option of making a partial transfer out of NEST into another pension scheme, unlike most other workplace pension scheme providers. Some employees like this option because it allows them to diversify and potentially reduce investment risk.

 

 

 

 

I decided to check NEST members’ opinions on Trustpilot. The comments were very interesting. Although NEST receives an overall rating of 4 out of 5 stars, a significant 20% of members gave it 1 out of 5 and their comments were very revealing and unflattering. In fact, I would go as far as to say they were embarrassing. This doesn’t surprise me at all because in my experience everything the government touches, they invariably do badly. Just check some of their comments on this link.

 

So, whilst NEST is a relatively low-cost workplace pension provider and it is secure because it is government-backed, it suffers from a shortage of services and it is administratively quite poor. Nonetheless, it has grown to become a huge workplace pension provider with £21 billion under management and it is forecast to grow to £100 billion. Employers are likely to continue offering it to staff because it is simple and cost-free to them.

 

Personally, I am not convinced it is a particularly good workplace pension scheme.  For example, other schemes get much higher ratings on Trustpilot. However, if you are an employee and you are given the opportunity to join your employer’s NEST workplace pension scheme you should definitely join it. You will have the benefit of free employer contributions of 3% of your salary which is a tax-free benefit in kind. Whether you should transfer any other pensions you own into it is a moot point. I would recommend you take advice from a pension specialist first. You know it makes sense. *

*RISK WARNING

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts. This blog is based on my own observations and opinions.