NEST or Personal Pension

tony4147

I been informed that in June I will be automatically enrolled into the NEST scheme. I already have a personal pension with Scottish Widows and the AMC is 0.7%.
Would I be better opting out of NEST and increasing contributions into the SW pension?
Or
Would I be better off reducing my contributions in the SW pension and putting them into the NEST scheme?

xylophone

Is your employer contributing to the NEST pension?

mania112

'auto enrolment' forces the employer to contribute IF the employee does.

Therefore, even though NEST is expensive, you'll be receiving free money into it and you should maintain it - along with your PP.

Suggest you pay only what you have to into NEST and continue regulars into the SW pension.

kidmugsy

Pay enough into NEST to make sure you get maximum employer contribution. If there's money left after that, contribute it to your private pension.

stinktankcynic

Was there a law that said a firm offering avc's or stakeholders had to offer two options? Or was it just a choice?
Nest doesn't sound great to me, a dearer other scheme the same, would it be fairer if the firm offered a choice? I know a lot will opt out anyway, but many who want a pension may opt out if it's nest rather than a cheaper, less restrictive one.

GhIFA

stinktankcynic wrote: »

Was there a law that said a firm offering avc's or stakeholders had to offer two options? Or was it just a choice?
Nest doesn't sound great to me, a dearer other scheme the same, would it be fairer if the firm offered a choice? I know a lot will opt out anyway, but many who want a pension may opt out if it's nest rather than a cheaper, less restrictive one.

No,there is no law saying that. The only responsibility the employer has under the legislation is to auto-enrol into a qualifying scheme - this could be Nest, People's Pension or a qualifying GPP, whichever the employer decides is best for them. As long as they do this they have met the requirements of the legislation and do not have to offer an alternative.

jamesd

NEST is the lemon of the auto-enrolment bunch and any employee threatened with it should work with their co-workers to ask their employer to pick one of the decent alternatives instead. The key driving factors are that it bans transferring out, has a very limited range of investments that you can't escape from by transferring out and has a cap on how much the contributions can be, so some employees will either have less than they could going into their pensions or an employer will have to have two different pension schemes running to cover all employees.

The three main schemes aimed at the low end of the auto-enrolment market are:

NEST: can't transfer out, very limited investment options. 0.3% of investment value annual charge plus 1.8% of each amount paid in. I think this is the lemon of the bunch due to its ban on transferring out combined with limited investment choice.

Now: Pensions: can transfer out, only one investment option, with an excellent reputation that makes it a great choice for employees who don't pay much attention to pensions, while those who do pay attention can transfer out. The Danish version of this investment fund won best pension fund in Europe awards for six of the last seven years. 0.3% of investment value as annual charge plus £1.50 a month from what employees pay in, with discounts on that for employees earning under £18,000 a year until October 2018, starting at just £0.30 a month now.

People's Pension: very limited investment options, can transfer out. 0.5% of investment value in annual charges.

Of those choices I generally think that Now: Pensions offers the best deal: a probably great fund for those who don't pay attention and a transfer out option for those who do and want that.

If your employer is doing only the minimum 1% employer contribution and you're reasonably young - middle aged or younger - I'd probably choose to opt out to avoid locking my money up in the limited options in the NEST pension. Better investments and time can easily outweigh the loss of the employer part at that sort of level.

If you do pay any money into a NEST pension, under their current rules you're stuck with an extra pension for life because you can never transfer it anywhere else or transfer anything else into it, not that you'd ever want to transfer in anyway.

It's unlikely to be worth changing any of your Scottish Widows contributions to go into NEST. Cheaper and/or better investment options are available elsewhere, without it's limitations.

There are just two pension schemes where I'd currently suggest not joining for younger workers, NEST is one of them. Almost always it's a good idea to join, the two are just sufficiently bad that their limitations override the general rule.

Discussing the alternatives with your co-workers and getting together to ask your employer to select a better option is what I recommend you do.

It's also worth saying something about the investments you're using in the Scottish Widows pension. You may be able to get a cheaper deal than that, depending on just what investments you're using.