National Employment Savings Trust (NEST)

As part of the Governments Workplace Pension Reform they have introduced NEST. This is one option open to employers to fulfil their obligations to offer a pension to their workforce from 2012.

The National Employment Savings Trust (known as NEST), is a centralised registered occupational pension scheme established by statute, and is open to any employer. It is intended to be a simple, low cost pension scheme primarily aimed at low to moderate earners. As such, it has some special rules and restrictions that mean it is not as flexible as most other pension schemes.

• Contributions: There is a cap on the yearly amount that can be made to the scheme for, or by, any employee. This cap was set as £3,600 a year in 2005, but will be reviewed each tax year in line with the increase in average earnings. It is expected to be around £5,000 a year by the time NEST starts accepting members in 2012. This cap is expected to be removed in 2017.
• Investment: NEST will have a default investment fund for members who don't make their own investment choice. This is likely to be a cautious tracker fund which moves investors into more cautious assets in the approach to retirement. It is also likely that any additional investment choice will be fairly limited, compared to a Personal Pension for example.
• Pension income: The only option for providing an income from NEST is to buy a lifetime annuity from an insurance company.
• Charges: As with a Stakeholder pension there will be a cap on the charges under the scheme. The stated long-term aim is for an annual management charge of 0.3% to be the only charge against members' funds. However, at least in the early years of NEST, there will also be a 1.8% initial charge taken from every contribution paid to the scheme. This can look quite expensive when compared to a Stakeholder pension in the early years.
• Transfers: Initially, there will be restrictions on transfers in and out of NEST.