NEST and tax relief for self-employed

jamesuk1981

Hello

I have just set up a NEST account as a self-employed person on advice from someone. I figured at 34, it was about time to start a pension!! :-\ I have a personal bank account which I use as a business account too for simplicity (I am a sole trader) and will be making regular contributions from this account into my NEST pot.

I only just realised however, that the tax relief for NEST is done by the government adding to the contributions I put into the NEST pot, rather than me being able to claim tax relief on what I save in my yearly self-assessments. I have heard that other private pension schemes do it differently and I would claim tax relief when I file my returns.

I am not good enough with mental arrhythmic to work out which would be most beneficial. In the long run, would it be better for me to get the tax relief now in my tax returns (going with a private pension), or to have the government top up my contributions (with NEST)? If the pension is topped up by the government now, then I guess that can benefit me by increasing the amount that is paid in overall - making a bigger pot in the end, but then does that mean more tax to pay when it is taken out in retirement ??

Or is the outcome simply identical which ever way I do it? Any advice would be helpful!

Thanks

greenglide

You would only get tax relief via self assessment if you were paying higher rate tax. This is the only relief in pensions that you get as "cash in hand".

The two options for basic rate tax relief are either for the pension provider to claim it (as in your case) or for the employer to use it to offset it against your salary. Since you do not have an employer this is not open to you.

What made you choose NEST? Strange choice.

dunstonh

I have just set up a NEST account as a self-employed person on advice from someone.

An adviser recommended NEST for a self employed individual? How unusual.

I figured at 34, it was about time to start a pension!!

yes. you have some catching up to do.

I only just realised however, that the tax relief for NEST is done by the government adding to the contributions I put into the NEST pot, rather than me being able to claim tax relief on what I save in my yearly self-assessments. I have heard that other private pension schemes do it differently and I would claim tax relief when I file my returns.

No. it is no different. Only if you were a limited company (and not self employed) would you pay it gross.

newbiesaver55

Why was NEST a strange choice? I'm considering setting one up myself, though I have previous pensions but nothing worth moving - I gather 2 small pots wouldn't be worth moving.

Is NEST not advisable for the SE then?? i liked the charges are nice and low...

greenglide

The main issue voice here tends to be that you cannot transfer out of it to another scheme. Transfers into it, I believe, are also limited.

A personal pension may have been more appropriate. NEST appears to be, mainly, for small employers running auto-enrolment?

newbiesaver55

Oh right thanks I didn't know that. Hope it works for others

dunstonh

I prefer plans with no initial charges and offering better investment options and being more in line with conventional options (so you dont have to keep changing provider when you want a particular feature).

NEST has too many limitations, poor investment choice, initial charges and doesnt offer any of the flexible retirement options (which isnt that important now but as you cant currently transfer out of it, if that doesnt get revoked, then you are stuffed).

zagfles

dunstonh wrote: »

I prefer plans with no initial charges and offering better investment options and being more in line with conventional options (so you dont have to keep changing provider when you want a particular feature).

NEST has too many limitations, poor investment choice, initial charges and doesnt offer any of the flexible retirement options (which isnt that important now but as you cant currently transfer out of it, if that doesnt get revoked, then you are stuffed).

Restrictions to be lifted in October next year http://www.ft.com/cms/s/0/23f8d51a-374f-11e4-b45c-00144feabdc0.html#axzz44K8mB6Rw

It might have an initial charge but it's still generally cheaper overall than other pensions as the AMC at 0.3% is lower than the vast majority.

zagfles

greenglide wrote: »

The main issue voice here tends to be that you cannot transfer out of it to another scheme. Transfers into it, I believe, are also limited.

But that was only ever a temporary restriction so it wouldn't be seen to have an unfair advantage over the competition. As the FT article states - elements of the pensions industry competing with Nest lobbied to restrict Nest as much as possible, and the govt was worried about state subsidies giving Nest an unfair competitive advantage. But from Oct 2017 the restrictions will be lifted.

jamesuk1981

Thanks everyone. So if I had chosen a private (say, Virgin Money) personal pension, the tax relief is still done in the same way? That's atleast good to know.

I am a little concerned by all the negative responses to my choice for NEST. I didn't get professional advice - someone said I should look into it, and some of the articles I read online seemed to suggest it was a good option as it was government backed (so I assume quite a safe option) and relatively cheap cost compared to others. The restrictions on it are being lifted next year I think too. I have no real head for investments, so am not looking for something too complicated (i.e making choices about risk levels etc). all I really care about is my money is safe, and wont be put into a company that can go bust and I lose it all AND that I will end up with as much as I can can get with the small amount of money I can afford to put in. Is NEST really so terrible?

dunstonh

Thanks everyone. So if I had chosen a private (say, Virgin Money) personal pension, the tax relief is still done in the same way? That's atleast good to know.

It may have just been an example but Virgin Money pensions are one of the worst there are. Its worse than NEST.

I didn't get professional advice - someone said I should look into it, and some of the articles I read online seemed to suggest it was a good option as it was government backed (so I assume quite a safe option) and relatively cheap cost compared to others.

NEST is positioned as an option for a small employer looking to comply with auto-enrolment regulations where an insurer offering a conventional scheme would not be available. Most insurers have a minimum level. NEST does not and fits the small market bit.

You dont have to comply with AE and therefore using a provider geared for AE is largely pointless.

NEST is not Government backed.

The restrictions on it are being lifted next year I think too.

only one of them.

I have no real head for investments, so am not looking for something too complicated (i.e making choices about risk levels etc).

Whilst keeping it simple makes sense in your case, you do need to make choices on risk. Its a fundamental requirement when investing irrespective of provider.

all I really care about is my money is safe, and wont be put into a company that can go bust and I lose it all

So, that would be a stakeholder pension or personal pension then.

Is NEST really so terrible?

No. its not terrible. its just not aimed at you and strange choice.