Is NEST still bad?

Alexland · 13 April 2018 at 8:01AM

ianlovatt wrote: »

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.

Yeah frankly all these single digit percentages are all really low and unlikely to give people anywhere near the retirement they might hope for. I agree the foundation phase is pretty bonkers. However it's worth making sure you are contributing enough to get the full employer matched contributions as its basically free money. As you say the Nest performance has been good and although we could debate preferences for asset allocation it will probably still do well going forward and over the medium term the cost is reasonable.

For the lump sums or additional contributions, assuming you are a basic rate taxpayer, its also worth considering a Lifetime ISA where you get the same 25% bonus as a pension contribution but there is no risk of tax on withdrawal. HL are good for small amounts / regular contributions and AJ Bell are good for lump sums (as they have £1.50 fund trade fees). You would need to include the fund cost for example Blackrock Consensus 85 is discounted to 0.09% on HL or the normal 0.22% on AJ Bell.

Ultimately when investing for retirement the biggest factor that determines the outcome is the amount you contribute. Costs and asset allocation are important but secondary concerns. Remember 30 years of retirement is 360 missing payslips so try working backwards from the pot size you would need to maintain your lifestyle in retirement and don't forget to factor inflation which essentially acts as a significant drag to your investment performance.

Alex

jamesd · 13 April 2018 at 4:09PM

ianlovatt wrote: »

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.

NEST remains dire and te highest available growth option can be expected to deliver something like half of the final pension value if you accept defaults for other things. There are several reasons for this:

1. In the early years they deliberately pick low growth investments.
2. During the middle years they use lowish growth investments and even selecting the highest growth option still has a high non-equity component, seriously harming growth for younger people.
3. They use a very long lifestyling period to switch to low growth investments in the decade plus before specified retirement age.

You can opt out of some of this but you can't escape the high non-equity component of their highest growth fund. It's hard to be sure but that appears to be their Sharia fund.

Don't let this stop you from using NEST to get maximum employer matching but beyond that using a global equity tracker fund somewhere else is likely to deliver considerably better long term growth. The Vanguard one is OK but there are now some cheaper ones around.

jamesd · 23 April 2018 at 12:39AM

There's a more extensive discussion of the NEST investment options at NEST Pensions Higher Risk Fund . That should also provide lots of background on why I'm not a fan, except to get employer matching.

Afraid_of_Kittens · 12 May 2018 at 7:41AM

I recently had a career change and already have 31 years contributions into 4 Local Government Pension schemes - 1 I can draw at 60 - 2 I can draw at 65 and 1 I can draw at 67 (I moved to different employers in different Counties but forgot to transfer my pension pots - as there has been numerous changes to the Local Government Pension schemes over the years some pensions I can receive earlier than others - I am glad of my ignorance as this means I get 1 pension 7 years before my former colleagues).

My new employer auto enrolled me into NEST. Nobody at my firm has switched.

As I will retire in under 20 or so years it would mean I would have a 8 years of growth phase and 10 years of consolidation phase.

Here is what I have done.

1) Increased my contributions to NEST to 7.5% - I can afford this amount.

2) Extended my retirement age by 11 years so my NEST pot isn't automatically transferred 10 years before I am 65 to the consolidation phase.

3) Transferred my NEST pot to the high risk fund - I was thinking about the Sharia fund as this is even higher return - but decided on the high risk fund instead.

By doing this I have increased my risks but also increased my returns and extended the growth period from 8 or 9 years to 18 or 19 years.

I already have 31 years of taxpayer funded Local Government Pensions with a very healthy lump sum and pensions to receive so I thought the risk was worth taking. This probably isn't the right thing for some people but I can afford the risk.

Nobody at my new firm has even bothered to log into NEST and don't realise they can transfer their funds to gamble on their returns.

Afraid_of_Kittens · 12 May 2018 at 9:51AM

This is the link to the quarterly reports and unit prices of the various funds showing the volatility and growth. I am not worried about the week to week month to month ups and downs of the unit prices - I'm looking at the long term percentage growth of the various funds - this is after all a long term investment with your employer handing you NEST pot some lovely free money. Sharia looks the most attractive and they have started listing where the funds are invested.

I extended my retirement date so my NEST pot isn't shoved in a Consolidation fund for a decade with 2-4% growth - I would rather take the risk in a High Risk fund with 10-14% growth for those ten years.

I am fully aware of the volatility risk but I'm also looking at the direction of growth.

https://www.nestpensions.org.uk/schemeweb/nest/aboutnest/investment-approach/other-fund-choices/fund-factsheets.html

jamesd · 13 May 2018 at 11:20PM

Afraid_of_Kittens wrote: »

1) Increased my contributions to NEST to 7.5% - I can afford this amount.

2) Extended my retirement age by 11 years so my NEST pot isn't automatically transferred 10 years before I am 65 to the consolidation phase.

3) Transferred my NEST pot to the high risk fund - I was thinking about the Sharia fund as this is even higher return - but decided on the high risk fund instead.

By doing this I have increased my risks but also increased my returns and extended the growth period from 8 or 9 years to 18 or 19 years.

That's a good start but please reconsider using NEST for the extra money. You can get a better combination of risk and growth with a global equity tracker somewhere else.

LINNEY_59 · 30 December 2018 at 12:22PM

My husband has been trying for a number of months to gain his pension fund and still they want these details, those details etc forms filling, identification which has all been submitted more than once. A complaint was also submitted but still no joy from them......I would avoid big time. Fortunately the pension owing is not a large amount.

planteria · 31 December 2018 at 10:50PM

Alexland wrote: »

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.

agreed. i don't like that element at all, but i can understand the logic.. they don't want people who are persuaded to invest for their future, as they should, to bail out when someone in the canteen says 'told you it's best to opt out, it's losing money already' or some such.

Is NEST still bad?

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