Is NEST still bad?

zzzt

My employer gives me an auto-enrolment NEST pension with the mandatory 2% going in (until 2018 when it rises to 5%).

I found this thread of people being very critical of NEST: https://forums.moneysavingexpert.com/discussion/4642433

One of the main criticisms was that you can't ever get to the money, it's locked in there until retirement age and cannot be transferred. I don't think this is true as of this year, because from looking at this page, it seems that you can both transfer it to another provider, as well as withdraw it (so long as you have a certain amount in there).

The other criticisms are that you cannot choose how it's invested and that they are probably investing your money badly since they base it on your potential retirement age.

So I'm thinking, is my best option to let the NEST pension just happen, since it's "free money", but not put any more of my own money into it above the default 1%. And instead open a SIPP with another provider who will let me pick and choose how it's invested, and put at least 10% of my salary into that?

bigadaj

It's not the best provider or option, but certainly worthwhile contributing to get matching amounts.

Your plan seems appropriate in getting what you can from your employer and then opening a separate pension do additional amounts.

AnotherJoe

Agreed with bigadaj, its not that its bad, its just not as good as it could be, so as you plan, keep taking the free money into the NEST pension, and invest additional into a SIPP.

Alexland

Although NEST might have a high initial fee the subsequent ongoing charge is attractive. If you are young enough it will be good value on the early contributions over 20+ years.

For example contributing £1k at the start of a year to an existing £9k NEST pot would be a £18 (1.8%) contribution fee and a £30 (0.3% annual fee) so £48 (0.48%) total charges. This compares to a Cavendish SIPP where there might be a 0.25% platform charge plus a 0.22% VLS fund charge so 0.47%. Or compares to an Aviva stakeholder where the charges for pots under £50k are 0.55%

If you think of the money as a FIFO queue then in drawdown even the later contributions will be invested for 20+ years so will be good value.

I find the NEST foundation phase particularly interesting as they aim to limit the volatility for new investors (at the cost of potential returns) so that they don't get spooked by losses and leave the scheme. If you have previous investment experience that gives you the perspective to expect volatility then you can probably override this.

Think hard about the amount you are putting aside for retirement as the minimum contributions are unlikely to meet even your minimum quality of life expectations in retirement and anything you don't put in now will need catching up in future.

Ps it seems harsh for criticising a pension for locking the money away for retirement as that's the whole point and the reason the government give the tax advantages.

Pps Given the ultra low ongoing fee I don't know why you would ever consider transfering out (although the option is available) and if anything you should be considering transfering in any old schemes as there is no initial charge and you will get access to that low annual management charge.

Finally, the romantic in me likes to think of pensions as a LIFO queue so the money from my youth is invested and compounding for 70 years! Still it doesn't really matter how you think about it the charges will be the same.

Malthusian

zzzt wrote: »

The other criticisms are that you cannot choose how it's invested and that they are probably investing your money badly since they base it on your potential retirement age.

You can switch funds and you should switch everything out of their Retirement Date Fund into their Higher Risk fund. This avoids the idiotic "foundation phase" where they invest you in lower risk assets at the time you should be taking the highest possible risk, on the grounds that you are stupid and will switch into cash if they invest your money properly.

Other funds are available if you think the Higher Risk fund might be too volatile. Or for maximum risk/return you could even go for the Sharia Fund which invests in 100% equities, but IMO it contains too much risk that is not rewarded with expected return.

dunstonh

I have mellowed on NEST. Part of my issue was the way tha the taxpayer are funding them and how NEST, for a new provider, act in archaic ways and how they managed to be victim of a large fraud so early on.

NEST is a simple option and whilst the initial charge is a pain, it is offset by the lower annual charge.

All pensions are tied up to the minimum retirement age. You dont get the very good tax benefits from the Govt just to allow you to access it before retirement.

The other criticisms are that you cannot choose how it's invested and that they are probably investing your money badly since they base it on your potential retirement age.

The choice is limited but for most people, that is not an issue. What they have in the areas they have are fine. Except that foundation phase which is a gimmick and not likely to be suitable for most.


Free money still makes it worthwhile.

Alexland

Thinking about it the NEST charging structure would be ideal for child pensions where the lower annual charge has many more years to payback the initial contribution charge.

Its a shame they don't offer child pensions directly without going via an employer.

kidmugsy

Alexland wrote: »

Its a shame they don't offer child pensions directly without going via an employer.

You could always open one and hold it unto death, having allocated it to your children on death. If you died before age 75 that might be a brilliant investment.

bostonerimus

The initial charge is a rip off, but NEST is worth it if it's all you've got and you get the employer matching contribution.

zzzt

I'm certainly not going to opt out of it, I was just wondering whether I should contribute more to it, or contribute more to a SIPP. Because the 1% I contribute by default would not make for a very good retirement.

Malthusian

If there's no more employer matching available then there is no reason not to contribute to a SIPP. (Assuming a SIPP is actually the right choice but people use "SIPP" interchangably with "personal pension" nowadays.)