NEST is a low-cost pension you may be able to join through your workplace or if you are self-employed. Once a member, you can carry on saving this way even if you change jobs or stop working.
What is NEST?
NEST is a pension scheme set up by the government mainly to help employers with automatic enrolment. Between 2012 and 2018, employers must automatically enrol most of their workers in a workplace pension scheme and pay in contributions on your behalf. Your employer chooses the scheme but it must meet minimum standards. Many employers are likely to choose NEST.
The main features of NEST are:
- defined contribution scheme, so you build up your own pension pot
- flexible contributions
- low charges.
Who can save with NEST?
You can save with NEST if:
- your current employer enrols you
- a previous employer enrolled you
- you are self-employed
- you are given a share of a NEST pension following divorce or the end of a civil partnership.
How NEST works
NEST is a defined contribution scheme. This means that the contributions paid in by you, your employer and anyone else are invested and build up your own pension pot. You use this pot to provide an income in retirement.
For every £10 you save, another £2.50 is added to your pension in tax relief.
If you are automatically enrolled into NEST, your employer must contribute and usually you must pay in a minimum amount too. You can pay in extra if you want to. If you are self-employed, you choose whether to join and how much to save. Tax relief is added to your contributions.
You can stop and start contributions when you like, and pay in regular amounts or single lump sums as long as they are within the NEST limits. The minimum contribution is £10. Total contributions, including those from your employer, must not come to more than a yearly limit, currently £4,600 (2014-15 tax year).
DID YOU KNOW?
For every £100 in your pension pot at retirement, stakeholder pension charges could eat away £13. NEST charges would take less than half that.
NEST Key Features document (2012)
NEST has two types of charge:
- A contribution charge set at 1.8% of whatever is paid in. So, if you contribute £10, after the charge £9.82 goes into your pot.
- An annual charge of 0.3% of your pension pot. For example, if your pot is worth £1,000 this year, the annual charge will take away £30, leaving £970 invested in the pot for next year.
These charges are lower than most personal pensions and much lower than the maximum charges allowed for stakeholder pensions (1.5% annual charge for the first ten years and 1% a year after that).
Once you are a member of NEST, you can carry on paying in even if you change jobs or stop work. If your new employer offers NEST then both you and your employer can pay into your existing pension pot.
You cannot transfer any previous pensions you have built up into NEST or transfer your NEST savings to a different scheme.