Here we give a brief background on NEST and some advantages and disadvantages as we see them

We have recently been discussing the merits of NEST Pensions (that is the National Employment Savings Trust for those not in the know) and thought it would be useful if we pointed out some of the advantages and disadvantages of selecting NEST as opposed to a pension scheme from a commercial provider.

To give a brief background on this first of all – NEST is a Government backed, not for profit organisation established as the only pension provider with a public service obligation to provide a Qualifying workplace pension scheme. They are not allowed to reject any employer regardless of how small the business may be and this will suit some businesses but not all. Commercial providers are not obliged to offer pensions to all businesses.

NEST currently has some restrictions due to the fact that state aid was provided to set it up. Restrictions put in place so as not to unfairly skew the market for existing commercial providers.

In order to keep costs to a minimum you may consider setting up a pension scheme with NEST yourself and this is of course possible. Our experience so far has been that this can sometimes lead to problems as this can be complex and time consuming. For that reason alone we wouldn’t recommend this course of action.

There is a perception that NEST is the lowest cost option and many employers choose it on that basis but this might not necessarily always be the case – as you will see from the comparison shown in this link. The link leads to external website for which we are not responsible for the accuracy of information contained within.

As a payroll provider, we are able to suggest a pension solution to an Employer that is compliant with Auto Enrolment duties and this is not regulated by the FCA.

As soon as an individual employee seeks advice this is where regulation comes in and only an IFA would be able to assist.

Given some of the disadvantages I have outlined below, we suggest reviewing your staff, salary levels and even possibly their expectations before making this decision.

Advantages of NEST

  1. Guaranteed acceptance
  2. Ticks the compliance box
  3. Suitable for low paid or part time workers
  4. If you have to have a scheme to be compliant but suspect no one will ever request to join it or that the staff you do enrol will all choose to opt out – this is for you.

Disadvantages of NEST

  1. Cannot transfer funds out until retirement – although under review in 2017
  2. Cannot transfer funds in from another pension provider – also under review in 2017
  3. Annual management charge of 0.3% plus contributions charge of 1.8% means it could be more expensive for the employee (depending how much they put in) than a private pension.
  4. Very limited investment range when compared to the rest of the market
  5. Annual contributions are capped per member. (This is reviewed every year but currently stands at £4,600.00 so high earners or anyone wishing to increase pension contributions will not be able to with NEST.)
  6. No certainty on costs as the charges are only guaranteed for 10 years
  7. No communications sent to employees – either payroll provider or employer has to complete themselves.

We hope this is useful in helping you to decide if NEST is right for you.

If you would like to discuss the auto enrolment solution we have on offer please give us a call on 01474 856853.

For more detailed advice including a Pensions recommendation report tailored to your business call us on the number above and ask to speak to one of our in-house independent financial advisers.


Disclaimer: A4G Payroll LLP is not regulated by the FCA and none of the above information constitutes any form of advice and should not be treated in this way. For pensions advice it is therefore incumbent upon any business owner or employee to discuss their requirements with an Independent Financial Advisor regulated by the FCA.

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