NEST pension scheme...a good idea?

ipri

Hi,

My 24 y old son has been given booklet with " Nest" scheme info. I have looked at this. He needs to start a pension. This look ok , but I'm not an expert. Any comments appreciated. thanks.

PS He is s chef at large pub chain...gets about £1000/ month net.

dunstonh

Its not great but it would be silly not to join it as it is free money. Plus, if he didnt join, he would be classed as an opt out which would prevent him getting a pension in many places elsewhere as they would know its not as good.

hyubh

ipri wrote: »

My 24 y old son has been given booklet with " Nest" scheme info. I have looked at this. He needs to start a pension. This look ok , but I'm not an expert.

The short answer is that he shouldn't opt out given the employer contribution, however small at present. The longer answer is that as a pension scheme, NEST is rubbish, and to an extent intentionally so (it is intended to act as a cheap default scheme for employers that nevertheless won't block out potential competition). Especially given his employer is being forced to offer a pension, the employer contribution isn't really 'free' money - someone has to pay for it, and typically that involves the loss of what would have been outright payrises in the future.

However, as an employee you can't bargain away NEST membership for higher pay. As such, opting out would mean taking a pay cut, and in that slightly twisted sense, giving away 'free money'.

DavidLaGuardia

hyubh wrote: »

The longer answer is that as a pension scheme, NEST is rubbish,

I don't think it's right to say it's Rubbish.

It not include some of the attractions of other schemes and notably does not allow salary sacrifice. However, it is going to be fit for purpose in many situations where the would otherwise have been no engagement in pensions. For industries with a large amount of transient workers (catering is definitely one of these) it is a suitable option.

atush

If he does take up NEST, he'd be better off paying in the Min to get the employers contribs, then using a PP or S&S ISA for further savings.

hugheskevi

This look ok , but I'm not an expert. Any comments appreciated.

The two potentially key drawbacks are a very small range of investments (as most choose/stay in the default fund) and no ability to transfer funds in or out to another pension (so NEST doesn't compete with other providers, as it has received support from public money - but there is the potential for customer detriment given customers cannot access or move the funds).

How much that matters will differ across individuals - those who manage their own investments and high a high risk appetite would find the restrictions more restrictive than those with a low level of engagement.

It [NEST]not include some of the attractions of other schemes and notably does not allow salary sacrifice.

This reference indicates otherwise - do you have a reference to NEST not allowing salary sacrifice?

jamesd

I think NEST is the lemon of the schemes aimed at auto-enrollment but it's the only pension deal he's likely to get from that employer.

Under NESTs current rules he'll be stuck with a NEST pension pot in addition to any others he ends up with until he's 55 because they do not currently allow transfers out until that age.

Because of his age they will start to put his money into things that are likely to perform poorly. He should change the place the money is being put in away from that after you explain that it's normal to see ups and downs of 30-40% along a long term upward trend and it's not something to be worried about when it happens.

ipri

An article in todays Mail on Sunday says that companies will offer a better rate than "NEST"....how do we find out if son's company does this ?...and does he then opt out of NEST?

jem16

ipri wrote: »

An article in todays Mail on Sunday says that companies will offer a better rate than "NEST"....how do we find out if son's company does this ?..

Get your son to ask.

and does he then opt out of NEST?

If he has access to a better pension then yes.

hugheskevi

An article in todays Mail on Sunday says that companies will offer a better rate than "NEST"....how do we find out if son's company does this ?...and does he then opt out of NEST?

NEST is just a pension provider, the same as other providers such as Legal and General, Prudential, etc. As such it doesn't have a 'rate.'

How much is contributed to that pension is the choice of the employer - they can use NEST and put in 10% of salary if they choose, or they could put the statutory minimum into any qualifying pension from any provider.

NEST tends to be associated with lower contributions as it has a low contribution cap so isn't attractive for an employer using pension as a recruitment and retention tool (ie they want to offer a good pension, but even for middle level employees they would exceed the NEST contribution cap). NEST is also the only provider obligated to accept any employer, and employers with more employees and higher contributions are more attractive to other providers.

Simply look at the details of your son's pension to see if they offer the statutory minimum or more than that.

The employer has to provide a pension meeting various criteria. They will probably only offer employees one choice of pension in meeting the requirements, whether the provider is NEST or someone else. You cannot opt-out of NEST (if they are the provider) and go into something else and still keep the employer contribution unless the employer offers that.

jamesd

There are three possible meanings for a better rate from a pension company:

1. The potential growth of the investments. NEST has a very limited range of available investments and isn't likely to do well by this measure.
2. The charges for the available investments. NEST has a high initial charge compared to almost all other pensions and its ongoing annual charging as a percentage isn't the best for the types of investment it offers either.
3. The monthly or annual charge just for having a pension plan.

There's also the employer's contribution rate that hugheskevi wrote about.