What is a Nest Pension?

What is Nest Pensions?

Nest stands for National Employment Savings Trust and is a defined contribution work place pension scheme in the UK.

Under the Pensions act 2008 Nest was established due to new duties where employers had to provide their UK workers access to a workplace pension.

Some workers will automatically be enrolled into the pension plan while others are able to ask to join a Nest pension plan.

Who is Nest owned by?

With Nest pensions being set up by the government this means Nest is a public body. Being a public body Nest has no owners or shareholders.

Nest is in fact ran as a Trustee and the scheme is ran with the interests of the members.

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The Trustee is ran by 15 board members and the employees of Nest Corporation. The board members are chosen by the Secretary of State for work and pensions.

Click here to check out the current 15 board members.

Types of Nest Pension funds.

Nest offers 7 different types of funds to its members. These all have different uses from age base to religious base investing. Two of these funds are only offered to those approaching retirement age.

Nest retirement date fund 

  • The most common and basic kind of fund.

Nest ethical fund

  • Designed towards those with concerns about the impact towards and society. Can be viewed as ESG investing.

Check out our ESG investing article here to understand further.

Nest higher-risk fund

  • Designed for members with a higher risk tolerance than the average pension saver.

Nest lower growth fund

  • Designed for members of Nest pensions who are more cautions towards investing and typically have a low risk tolerance.

Nest sharia fund

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  • The Nest sharia fund is designed for members who want to approach investing based on Islamic law.

Nest guided retirement fund (approaching retirement age)

  • This fund is an option for members who are aged between 60-70 years old and are looking at retiring.

Funds available with Nest pensions

Nest Retirement Date Fund

Being the most used fund with Nest pensions lets look in further detail of how this fund actually works.

As this fund is a retirement date fund this means it adapts to your age. When you are young in age, you have time on your side, with the Retirement date fund this takes that into account and invests aggressively, aiming towards more high growth. As you age the risk tolerance changes for this fund and the fund changes from growth towards maintaining a wealth level.

The Nest Retirement Date Fund uses a 4 phase approach to building your retirement account.

Stage 1 – Foundation phase

Typically in the early 20’s this stage is aimed at.

The goal of this phase, which lasts 5 years, is to help younger members of Nest pensions to get into the habit of saving regularly.

Stage 2 – Growth phase

This stage is crucial for your pension and Nest aims to start this phase when you are in your mid 20’s and older. The growth stage has an increased risk tolerance level as there is trade off of risk tolerance and the reward of gains. Though it is Nests goal to “grow your pot steadily and carefully rather than pursuing big wins at any cost.”

Stage 3 – Consolidation phase

For the consolidation phase this comes into effect roughly 10 years before the retirement date of the fund. At the consolidation phase the investments within the fund start a transition from high risk/growth to lower risk investments.

You are less likely to see big rises in value but provides peace of mind as you make your way to retirement.

Stage 4 – Post-retirement phase

At stage 4 you are offered two different funds to convert your retirement date Nest pension to either a Nest Guided Retirement Fund or a Nest Post Retirement Fund.

The differences between these two funds is that the Post retirement fund is offered if you don’t plan on taking your retirement at the retirement age and is designed as a temporary holding place.

Alternatively the Nest Guided Retirement Fund is offered for those who wish to start taking their retirement. This fund allows members to stay with Nest where there is a potential of investment returns as well as being able to access some of the money.

Golden egg for retirement

How much do you have to pay into a Nest pension?

Nest pensions were created with defined contributions in mind. Being an auto-enrolment pension scheme a simple option was the best option.

A defined contribution pension refers to a set amount, which you agree to, of how much of your pay check is put towards your pension. The basic percentage offered to most is 3% of your salary each time you get paid and your employer has to input a minimum of 5%, this brings the total contribution towards the pension of 8%.

Both you and your employer can agree to pay more than the minimum if they wish.

Can I take all my money out of my Nest pension?

At the age of 55 (58 after 2027) you are able to start accessing your Nest pension.

With pensions you are usually able to take 25% lump sum tax free and the remining 75% will be taxed. Once you take all the money from your Nest account the account will be closed.

 

It is possible to withdraw from a pension early, but be warned that there are consequences.  Withdrawing early from a pension can end up costly, while it isn’t illegal to withdraw early you may pay up to 55% tax on withdrawals.

You may find that there are clauses which allow you to access your pension funds early but these are typically extraordinary circumstances.

What happens to my Nest pension if I leave my job?

It is most likely that your new employer will automatically enrol you into a Nest pension, this is so they fulfil their pension duties. You may wish to check with the new employer if they are subscribed to Nest or if they may consider doing so.

You will receive a Nest form pack and will ask if you are already a member and for proof of identification. Using this they will be able to marry up the records and you will be able to invest into the same pension pot.

Can you opt out of Nest?

You are able to opt out of a Nest pension. While traditionally its not advised, it is an option for anyone.

If you are automatically enrolled into a Nest pension you are able to opt out as long as you’re within your one month opt-out period. You are able to stop contributions after your opt-out period has passed.

Once you have opt out Nest will proceed to close your Nest account and any contributions made will be refunded to your employer.

Click here to check out Nest pensions Opt-out more.

Nest pension opt-out

Is Nest a smart Pension?

Using Nest as a work place pension is a smart choice.

When it comes to investing and building wealth, simplifying and automating the investment process is one of the smartest ideas an investor could do.

The fact that you get work place contributions and managed funds with specific purposes its a no brainer.

Nest is one of the leading firms in the UK pension industry with their fast growth auto enrolment plan. With a simple range of options Nest is certainly a smart pension choice.

Summary

Currently Nest Pensions is rated 3.5 out of 5 stars on Trust pilot, giving it a ranking of average.

While Nest isn’t the top of the range in terms of amount of funds on offer, for the average joe wishing to save a bit towards retirement it certainly is a great option.

If Nest was the pension provider that your workplace decided to pick for auto enrolment then its unlikely that you will get a choice of another provider, though there is a possibility if asked.

Nest is a simple & cost effective pension. It being government backed and ran with no shareholders gives the peace of mind knowing that they have its members interests in mind.

The website provides a simple and effective layout and allows members to easily switch between funds. A brilliant way to help you save towards retirement.

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