NEST or others?

PensionTech

A question for those who have had some experience with auto-enrolment master trusts:

I've read a few posts on here (dunstonh, mania112 and jamesd all spring to mind) that have been a little disparaging of NEST. I'm aware that transfers out of NEST are restricted until April 2017, which isn't great, but other than that I'm not sure what the specific issues are with using it. Can anyone enlighten me on any particular gripes they have with NEST?

I'm also interested in how NEST compares with other master trusts. NOW: Pensions and The People's Pension seem to be the names usually bandied around as alternatives for auto-enrolment, and I have some idea of how they compare on costs, but not any other aspects (e.g. flexibility, investment options, speed/quality/level of service). Can anyone give a review or anecdote of how either of these trusts, or any of the other four schemes under the Master Trust Assurance Framework, stack up?

For a bit of background: I am asking on behalf of a friend with a small company who is going through auto-enrolment early next year. She needs an auto-enrolment scheme for box-ticking purposes, but it is likely to lie mostly or entirely dormant, since she already contributes very generous amounts to personal pension schemes for all of her workers, most of whom are relatively sophisticated investors. The chances are that those schemes will either count as "qualifying schemes" to exempt her workers from being enrolled at all, or most of her workers will immediately opt-out in order to get the contribution going back into their personal pensions. She is tempted by NEST because it seems to be the default option and has the kitemark from the Regulator, but I'm made uneasy by the frequent negative posts about it and want to get some informal feedback from people with more experience of AE master trusts.

jamesd

Higher charges than some of the competition and limited investment choices coupled with that transfer out restriction barring moving the money out.

NOW: Pensions is the one I'd go for of the three. Only one investment choice but they have confirmed that you can transfer out at any time so that's mostly moot. The one choice is decent so far as that goes and those who want more can use the transfer option from time to time.

NEST has to accept all comers and is perhaps a good choice for the person who has as their only employee a nanny.

dunstonh

For auto-enrolment use, I am more accepting of NEST. It is when people who dont need it for AE are using it for personal use that I am more critical.

I dont like contracts with initial charges. I don't like contracts with restrictions. i don't like contracts with really limited or confusing investment options. Sooner or later, restrictions or limited investment choice will become an issue for someone. Maybe not all. Probably not most. But it will happen

You are going to get more limitations with basic AE schemes. That is inevitable. They are not making as much money on these as they are catering for small companies. Plus, employers like workplace schemes to be simple.

The investments with NEST are quirky. They are based on time to retirement rather than personal risk profile. Time does dilute risk but there is no accounting for behavioural risk. Although most people taking out a pension via NEST probably never look at the pension statement and dont care about the investments. So, perhaps it is a good thing.

She is tempted by NEST because it seems to be the default option and has the kitemark from the Regulator,

There is no kite mark. It has nothing from the regulator that positions it any differently to others. It exists because it was believed that the insurers didn't want to deal with small group schemes. That is largely correct. However, a couple of small providers did enter the arena and have done a perfectly fine job.

NEST has not been running long but it already fell victim to a £1.4m fraud. Insurers are subject to frauds all the time but a niche provider that is at arms length to the Government suffering a £1.4m fraud when it has only been going a couple of years shows naivety and puts taxpayers at risk. At the time of the fraud, it only had £6m under management and at charges of 0.3% p.a. which is £18,000 a year. It has built that to over £420m which is impressive. Although it does have a commercial advantage over the others as it is seen by many as the default option and the last few years have been the period where you would expect the likes of NEST, NOW and the peoples pension to get their main growth as its the sort of stuff the big insurers dont want.

I'm made uneasy by the frequent negative posts about it and want to get some informal feedback from people with more experience of AE master trusts.

For AE, don't be uneasy. It is fine. Although, I would suggest an analysis of the three main ones and decide from there. Don't go with the "default" without looking at all three first. Given the £500 charge that peoples pension have introduced, that is now less attractive than it was a year ago.

PensionTech

Sorry, by "kitemark from the Regulator" I'm talking about the master trust assurance framework. I have of course pointed out to her that NEST is not the only scheme to be recognised under this framework. It also has the PQM from the NAPF or whatever it's called now, but again, so do the others in question. I doubt that either of these statuses really mean very much other than that the providers concerned have bothered to apply for them, but to an employer who isn't familiar with industry names, it offers a little comfort.

Thanks for the feedback both. NOW: is probably less attractive to this employer because it appears to have a fixed monthly employer charge, which although low seems a little silly if (as she's expecting) there aren't going to be any, or many, contributions actually being paid into it on an ongoing basis, but if there was some huge advantage in service (help with ongoing compliance etc.) then it might have been worth thinking about anyway. The People's Pension is a possibility; she will be paying a consultant to set up the whole thing for her anyway (once she's decided on a provider; the consultant won't recommend one for her) so I doubt she'll be too worried about another £500 on top of the initial costs. But costs are what I already know; I'll try to find out more about their offerings, although it sounds like NEST isn't necessarily the dud I thought it might be.