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  • FIRST POST
    • zzzt
    • By zzzt 21st Sep 17, 12:17 AM
    • 295Posts
    • 321Thanks
    zzzt
    Is NEST still bad?
    • #1
    • 21st Sep 17, 12:17 AM
    Is NEST still bad? 21st Sep 17 at 12:17 AM
    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: http://forums.moneysavingexpert.com/showthread.php?t=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?
Page 2
  • ianlovatt
    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
    • Alexland
    • By Alexland 13th Apr 18, 8:01 AM
    • 3,127 Posts
    • 2,463 Thanks
    Alexland
    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.
    Originally posted by ianlovatt
    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
    Last edited by Alexland; 13-04-2018 at 8:17 AM.
  • jamesd
    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.
    Originally posted by ianlovatt
    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.
    Last edited by jamesd; 13-04-2018 at 4:11 PM.
  • jamesd
    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
    • By Afraid of Kittens 12th May 18, 7:41 AM
    • 149 Posts
    • 151 Thanks
    Afraid of Kittens
    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.
    Last edited by Afraid of Kittens; 12-05-2018 at 4:31 PM.
    • Afraid of Kittens
    • By Afraid of Kittens 12th May 18, 9:51 AM
    • 149 Posts
    • 151 Thanks
    Afraid of Kittens
    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
    Last edited by Afraid of Kittens; 12-05-2018 at 5:18 PM.
  • jamesd
    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.
    Originally posted by Afraid of Kittens
    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.
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