NEST is a workplace pension scheme which was set up to facilitate Automatic Enrolment (AE) as part of the British Government’s workplace pension reforms per the Pensions Act 2008.
As at September 2023, it had £33bn in assets under management (AUM) and 12.5m members.
What Is NEST?
NEST stands for National Employment Savings Trust.
It is a workplace Defined Contribution (DC) scheme. This means that the amount of money you get in retirement depends on how much you and your employer contribute, in addition to how well your investments perform.
Each employer must offer their eligible workers the chance to join a workplace pension scheme. You are eligible if you earn over £10k per year and are aged between 22 and UK State Pension Age.
“The scheme, which is run on a not-for-profit basis, ensures that all employers have access to suitable, low-charge pension provision to meet their new duty to enrol all eligible workers into a workplace pension automatically.” Source: Gov.UK
If you are auto-enrolled or join NEST then you become a member.
Who Runs NEST?
NEST Corporation is the Trustee that runs the NEST DC workplace pension scheme. There are no shareholders or owners. It reports to the UK Parliament through the Secretary of State for Work and Pensions.
Funds on Offer
NEST offers a range of funds to invest in:
NEST Retirement Date Funds
99% of members are in one of the NEST Retirement Date Funds. This default strategy provides a fund for every year that a NEST member could retire and is set to your UK State Pension Age.
For example, if you reach State Pension Age in 2040, you will be put into the 2040 NEST Retirement Date Fund.
According to the NEST Q3 2023 Quarterly Investment Report, the Fund Objectives are:
” – target investment returns equivalent to CPI plus 3% and cover all scheme charges over the long term
– expect a long-term volatility average of 11%
– aim for steady growth in real terms over the life of the fund
– maximise retirement incomes by taking sufficient investment risk at appropriate times while reducing the likelihood of extreme investment shocks”
Asset Allocation is per below:
It is benchmarked against CPI +3%. You can see below that it has underperformed against this benchmark over the last 1, 3 and 5 years.
NEST Ethical Fund
This fund is for those who want to invest in funds that focus on ethical, social and governance (ESG) issues, e.g., human rights and fair trade. It also invests in companies that positively contribute to society.
According to the NEST Q3 2023 Quarterly Investment Report, the Fund Objectives are:
” – provide a fund choice for members who want to invest in a portfolio that reflects their ethical concerns
– target investment returns of inflation plus 3% and cover all scheme charges over the long term
– expect a long-term volatility average of 13%
– aim for steady growth in real terms over a member’s time saving and maximise incomes in retirement by taking sufficient investment risk at appropriate times while reducing the likelihood of investment shocks”
Asset Allocation is per below:
It is benchmarked against CPI +3%. You can see below that it has greatly underperformed against this benchmark over the last 1, 3 and 5 years.
NEST Higher Risk Fund
This is for members who are comfortable taking more risks in the expectation of greater returns.
According to the NEST Q3 2023 Quarterly Investment Report, the Fund Objectives are:
” – take more investment risk than the Nest Retirement Date Funds in the growth phase in pursuit of higher potential returns
– expect a long-term volatility average of 17%
– reduce the likelihood of extreme investment shocks by diversifying across a range of return-seeking asset classes”
Asset allocation is per below:
Investment performance for this fund has been improving over the last 5 years:
NEST Sharia Fund
This fund meets Islamic (Sharia) finance standards. For example, Sharia finance does not invest in companies engaged in tobacco, alcohol or gambling.
According to the NEST Q3 2023 Quarterly Investment Report, the Fund Objectives are:
“– provide a fund with an investment approach based on Islamic law
– expect a long-term volatility average of 22%
– grow a member’s pot in real terms over the course of their savings career”
Asset allocation is per below:
The NEST Sharia Fund has performed well since its launch, per below:
NEST Lower Growth Fund
This fund is for conservative investors who are risk-averse but who are willing to accept that their pension may not grow very much. It is 100% invested in bonds.
According to the NEST Q3 2023 Quarterly Investment Report, the Fund Objectives are:
” – preserve the nominal value of contributions after all scheme charges over the long term and grow the fund in line with low-risk money market investments
– expect a long-term volatility average of 0.5%”
Asset Allocation is per below:
The NEST Lower Growth Fund has only shown 0.5% growth since its launch. However, its performance has greatly improved over the year 22/23.
How Investment Performance of The Funds Compare
According to the NEST Q3 2023 Quarterly Investment Report, this is how the funds’ investment performance compared over 5 years.
As you can see, the NEST Sharia Fund outperformed all other funds.
Interestingly, the top 10 holdings in the NEST Sharia Fund are mainly driven by technology companies which are also in the top 10 shareholdings of the S&P 500.
NEST Retirement Funds
There are also two funds for members who are past the UK State Pension age and who can withdraw money from their NEST pension pots.
The NEST Guided Retirement Fund which is available for members who have more than £10k in their pension pot, are between 60-70 years old and want to start withdrawing money from their NEST pension fund.
The Post Retirement Date Fund – Series 2 is available for members who have decided not to withdraw all of their pension savings, under £10,000, when their NEST Retirement Date Fund matures.
NEST Charges
NEST charges:
- 0.3% annual management charge (AMC) on the total value of your pension pot
- 1.8% contribution charge for each payment into your NEST pension.
The chart below shows how this works:
Contributions to Your Pension pot
As a NEST member, you would pay a percentage of your wage into the NEST pensions. NEST can claim tax relief from the UK government on your contributions plus your employer may also contribute.
In the example below, you can see how this can double your total contribution to your pension.
What Are the Minimum Contributions?
For the 2023/2024 tax year, you make pension contributions on earnings between £6,240 and £50,270. the legal minimum that you and your employer must pay is 8% of qualifying earnings.
For example:
| April 2019 Onwards | % of Qualifying Earnings |
| Employer | 3% |
| Worker (You) | 4% |
| Tax Relief | 1% |
| Total | 8% |
Employers may calculate this differently. However, the net result must be a minimum of 8% contribution to your pension pot.
What Is the Maximum You Can Contribute?
The maximum you can contribute is £60k annually.
The Lifetime Allowance (LTA) is £1,073,100 for the tax year 2023/2024. the charge for breaching the LTA was removed on 06 April 2023. The allowance will be abolished on 06 April 2024.
Transferring Your Pension
You can transfer other pensions into your NEST pension. You can also transfer your NEST pension to another pension you may have e.g., a SIPP with another provider. Speak to NEST and your other pension provider to understand the transfer process.
Accessing Your NEST Pension
You can access your NEST pension from age 55. You can change your retirement date to any date after your 55th birthday.
Summary
NEST is a UK workplace pension scheme that can offer you a range of investment funds for retirement savings.
It adjusts asset allocation based on your retirement date, charges low fees, and has the benefit of being backed by the British government.
It facilitates compliance with Automatic Enrolment regulations, helps you benefit from tax relief and employer contributions, and secures your financial future.
Thanks for reading!
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