What is NEST?
The National Employment Savings Trust (NEST) is a defined contribution workplace pension scheme in the United Kingdom. It was set up to facilitate automatic enrolment as part of the government's workplace pension reforms under the Pensions Act 2008.
Every NEST member has a pension pot where money is paid in by him and his employer over time and then invested by the pension provider. The size of the pension pot available to take out on retirement depends on how much was paid in and the level of growth from the investments.
What do I need to know?
By law, the minimum contribution is set at 8% where the employer must pay at least 3%. Therefore, if your employer chooses to contribute only 3% (as a minimum), then you must contribute an additional 5%.
NEST can be joined through automatic enrolment which is a legal requirement of every UK employer. Eligible for auto enrolment are employees age over 22 and below State Pension Age with annual earnings of £ 10,000 or more. An individual can also join NEST if he is self-employed or the sole director of a company that doesn’t employ anyone else.
NEST membership can be cancelled during the one month opt- out period that commences after automatic enrolment. Start and end date of that period is included in the welcome letter send by NEST within 3 days of automatic enrolment. If someone op out within this period, then he is entitled to a refund from the employer. Opting out after that period means that money can be accessed the earliest at the age 55.
To opt out a member needs to contact NEST with his NEST ID (in welcome letter) in one of the 3 ways: online, over the phone, or by post. A member can also take a break in paying money into NEST, but he will miss out on employer’s contributions and tax relief from the government.
Accessing your pension
NEST members can start accessing the money from the age of 55- however the earlier pension is drowned, the lower the benefit will be. Members may wish to benefit from savings into pension for longer by changing retirement age. It can be done at any time by logging into NEST account.
Tax on pension
Pension in payment (including annuity) is a taxable benefit – income tax is payable if the member’s income is more than their personal tax allowance. NICs are not paid on pensions in payment (employee’s or employer’s). If a member decides to continue working beyond their State Pension Age (SPA) only employer’s NI is due.
The State Pension is a “taxable “income but is paid “tax free”- government will tell occupational/private pension provider to deduct any tax due on the state pension from the private pension (personal allowance is reduced of the value of a state pension).
NEST charges stay the same whether a member is contributing or not, whatever fund they’re contributing to, and no matter how much is in their retirement pot.
These charges are made up of two parts:
- a contribution charge of 1.8 per cent on each new contribution into a member’s retirement pot
- an annual management charge (AMC) of 0.3 per cent on the total value of a member’s fund each year
So, if a member paid £1,000 into their pot over the year, the contribution charge would be £18. If their pot was then worth £10,000, they’d pay an AMC of £30. The total charge would come to £48. That’s just under 0.5 per cent of the total value of their retirement pot.