Is NEST still bad?

Alexland · 21 September 2017 at 6:03PM

But if you are keeping it for a long time there is no reason not to contribute more to your NEST scheme.

If you spread that initial 1.8% out over 20+ years and add it into the 0.3% annual management then even considering the compounded opportunity cost of paying the initial fee upfront you still get a total fee in the range of 0.40% to 0.50% which is comparable to the costs of the cheapest small private pensions.

It's only when you get to about £100k that you are likely to get a SIPP and diversified fund running at under 0.40% and only when you reach about £250k could it be under 0.30% so materially cheaper than NEST. You will have probably had to move from a percentage based SIPP provider to a fixed charge SIPP provider once you had accumulated around £80k. If all your employer and a proportion of your contributions are going into NEST (for good reason) that would make it harder to build a parallel pension of that magnitude. You might as well just put it all into NEST.

The NEST charges are probably more aligned to the cost base of other pension providers (as it costs more to take payments and invest new sums) but the others are smoothing it to make the total cost over the life of the product less obvious. You are still likely to pay roughly the same over the life of holding the product.

Now we have done a lot of talking about fees - are you comfortable with the investment choices that NEST offers?

bostonerimus · 21 September 2017 at 6:48PM

zzzt wrote: »

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.

Put enough into NEST to get the max employer contribution. If you then want to save more for retirement look at personal pension options......but make sure they have lower fees than NEST. Of course only do that after you've paid off high interest debt and saved 6 months spending into your bank account for emergencies.

starkj · 29 September 2017 at 2:01PM

What I don't like about Nest is very little information about current unit price. If you try to add a top up when the price looks a few pence lower then you have to hope it stays low as your contribution does not buy units for quite a few days later.

Malthusian · 29 September 2017 at 3:55PM

starkj wrote: »

What I don't like about Nest is very little information about current unit price. If you try to add a top up when the price looks a few pence lower then you have to hope it stays low as your contribution does not buy units for quite a few days later.

Same with virtually all pension plans. Who cares about a few days' unit price movement when it's the unit price in 20-30 years' time that matters?

jamesd · 29 September 2017 at 10:55PM

Alexland wrote: »

But if you are keeping it for a long time there is no reason not to contribute more to your NEST scheme.

That's really a reason not to use NEST. It has very limited investment choices so long term the likely investment performance can be seriously harmed. Provided the investor would use the extra options.

starkj wrote: »

What I don't like about Nest is very little information about current unit price. If you try to add a top up when the price looks a few pence lower then you have to hope it stays low as your contribution does not buy units for quite a few days later.

No normal funds allow you to buy at the last quoted price. If they did people would buy or sell based on market moves that have already happened but aren't in the price yet.

Exchange traded funds and investment trust transactions happen immediately at the price shown when you buy. They are shares and are dealt like other shares. Most SIPPs will allow both.

Have you considered VCT investing instead? 30% initial tax relief, have to hold for at least five years or repay. Tax exempt dividends and exempt from CGT. Investments in small companies with different VCTs varying widely in approach and risk based on their mixture of early speculative vs older or asset-backed investments. You could over time accumulate enough to eliminate your net income tax bill then switch to other tax wrappers like ISA and pension, just recycling the VCT money to keep your effective income tax rate around zero.

ianlovatt · 3 April 2018 at 10:47AM

Hello I thought I'd post here rather than start my own because it seemed to be capturing the same question I had and although there's some really useful information in the answers already provided I wanted to explore Alexland's post asking if the OP was happy with the options etc NEST offered... To hopefully see what Alexland follows up with my response is yes I think I'm happy with the investment options (higher risk seems good for the moment) and I think I'm "happy" with the fees for the reasons further down below.

I've got a NEST pension that's run for 1 year on the minimum contributions from myself and employer of 1%+1% and is now about to go up to the dizzy heights of 2+3%. It's been in the daft "foundation stage" part of the "year targeted" fund but I've just switched it to the higher risk one. I'm about to turn 34 and in a position to start putting ~15% of my wage into a pension plus have a few £k I could dump into a pension now as some kind of guilty apology for not starting sooner.

I've reached the conclusion I can't spend the time on doing a SIPP justice and given I have this NEST pension can I just use it instead? how does it compare against other Personal Pension funds (which I believe is the right beast to compare it with)? Is it an order of magnitude (x10) worse/better than "average", half as good? 10% better than most? I want to get a handle on where it sits.

I set off by trying to search how to compare pensions but the search results are so full of market comparison crap that trying to understand the mechanics of comparing pension options doesn't really feature, just loads of "best SIPP" "top 10 pensions" shouting at you. As far as I can tell the process is to understand what the fees are vs other options and then try to divine how competing funds will perform in the future based on their past performance whilst repeating the mantra that past performance is not a guide to future results.

I think I'm happy with the NEST higher risk investment options because I'm youngish and it seems to be getting "ok" growth over its lifetime (units1.0128 in aug 2011 to 2.2027 jan 2018). I tried to compare it to other MA (Multi Asset) pension funds on trustnet to see where it stands over the last 5 years. Of the 2220 funds listed in MA pension funds top of the 5 year growth was trustnet.com/factsheets/p/00ih/neptune-global-alpha-pn-arc with 80 (I assume that is %). That has fees of 1.1% a year. In another thread on here someone referred to the Aviva Multi manager 40-85% fund trustnet.com/factsheets/p/no48/aviva-multi-manager-40-85-pn-s3. That had 5 year growth of 45% and fees of 1%. Had a look at St James Place MA pension funds too as a relative had their pension with them (SJP seemed a bit upmarket for me like they normally deal with people whose "estate" actually is a country estate) but again the highest one over the last 5 years was trustnet.com/factsheets/p/ro47/sjp-schroder-managed-pn-acc at 42.7% with 1.79% fees.

Maybe I've missed something crucial? were these funds doing something extra/different to the NEST higher risk? As far as I can tell the higher risk NEST fund is about half made up of this trustnet.com/factsheets/n/k9w1/ubs-life-world-ex-uk-equity-tracker which has grown 77% in the last 5 years with a 0.1% fee.

I think I'm happy with the NEST fees (1.8% up front and 0.3% ongoing yearly) both looking at the funds above and that if I keep the funds in for around 12 years it breaks even with and starts to save over the 0.45% of a Hargreaves Lansdown SIPP. Maybe not the most relevant comparison but the most likely contender for me had I chosen a SIPP.

Bostonerimus said to the OP to go searching for a personal pension with lower fees than NEST but a couple of things are confusing me - many personal pensions still seem to be offering me a hundreds of funds to choose from in a SIPP like fashion and have similar fees to NEST. Bostonerimus, it'd be much appreciated if perhaps you could suggest one personal pension as an example "NEST-beater" and then I'll go looking along those lines.

Anyone know why NEST funds aren't on trustnet (bizarrely the 2063 targeted one is)?

Finally this is my first go on MSE forums (hence I'm not allowed to post links so I've hacked the start off them) and at pensions in general so apologies for any daft questions/errors, but hopefully the daftness can get picked up here rather than me finding myself getting interviewed on moneybox in the future when it turns out my pension plan was a load of rubbish.

Thanks for any help with this
Cheers,
Ian

zagfles · 3 April 2018 at 4:25PM

The NEST fees are relatively low - most other pensions/funds don't have an initial charge but a higher management charge, 1.8% initial and 0.3% annual is better than 0.5% annual if you keep it in over 10 years.

Can't really comment on how good the funds are - but if you're comparing be very wary about looking at the top performers over 5 years. Some markets did much better than others over the last 5 years, doesn't mean the same markets will continue to do well over the next 5.

Personally if I was auto-enroled into NEST and didn't have the time or inclination to do a lot of research, I'd probably just use the NEST pension for any extra.

ianlovatt · 3 April 2018 at 8:26PM

Thanks for the quick reply zagfles, much appreciated.

Yes I had the feeling that the random selection I'd drawn upon don't really represent the market. And of course that yes the future may be very different!

I'm not even really sure what pension funds to consider as competition to NEST, I went with trustnet's "related funds" to the 2063 for both sector (which seems to be "cautious" MA pensions) and asset class (ie MA) which also seemed to include some more risky options (ie the Neptune Global alpha fund above) so I'm hoping is more akin to the NEST higher risk fund that I'm opting for.

Well unless anyone screams stop don't do it I think that's my hard earned pennies heading nestwards...

Cheers,
Ian

edinburgher · 4 April 2018 at 11:03AM

I think you may be overthinking this and your decision to leave things as they are is likely the sensible one

Even with the increase in contributions, you're still going to need to invest elsewhere/more in NEST if you want to enjoy much of a retirement.

Do whatever necessary to get the free money, invest the rest elsewhere (optimise what you can control, no point fretting about the lack of options in NEST as that's all your employer offers).

ianlovatt · 12 April 2018 at 11:10PM

Thanks edinburgher. I am investing more in NEST (I've just made a lump sum contribution) but I plan to also increase my monthly contributions into NEST - unless that's a bad idea.

Below you said to invest the rest (above what's needed to get my employer contributions) elsewhere ie. not NEST. What made you suggest that? I don't want the complexity of selecting my own portfolio from thousands of different funds in a SIPP or hundreds as with some Personal Pensions.

Is there and equivalent "5-speed" (ie default fund, low-risk, higher-risk, ethical & sharia options) personal pension like NEST that has lower fees and is managed (in your opinion) by a more competent team? Due to my age (34) I've opted for the NEST higher risk. That's been described in other threads as the "least bad" option in NEST but I've never seen a better comparable alternative suggested.

Cheers,
Ian

Is NEST still bad?

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free