NEST Pensions: Are they still the best option 13 years on

NEST maintains its position as the largest online pension provider since the start the launch 13 years ago.  However, during this time other providers have developed more advanced digital platforms as competitive options.

What is NEST?

NEST serves as an Auto Enrolment support system for employers. It is a defined contribution (DC) pension scheme which accepts every employer, as well as self-employed individuals. The government supported NEST throughout its formation to create a pension scheme which would be both inexpensive for employers and employees and accessible to all qualifying workers regardless of job status.

The original purpose of NEST remains due to its low-cost structure and open enrolment policy for all businesses. The system provides simple procedures for businesses establishing their first workplace pension scheme.

NEST offered small employers, easy access to Auto Enrolment compliance. The system featured online accessibility and required no minimum contribution levels, which made it an attractive solution for many businesses.

The investment strategy of NEST is based on a lifecycle model.  Typically, this means that younger members’ assets are automatically invested for growth with a higher equity exposure (stocks and shares), and this gradually changes as they age to a higher fixed interest exposure (e.g. bonds and cash).  This approach, on paper, reduces investment risk as the investor approaches retirement age (hopefully locking in gains made during the growth years). However, it should be said that there are no guarantees with this approach, and it may not be suitable for all investors.

Members pay two fees to NEST: 1.8% on every contribution and 0.3% annually on the fund value for management costs.  However, these are still competitive.

What’s changed in the market?

Originally, NEST operated with minimal competition because it offered an affordable, easy-to-use pension solution. The market now has numerous providers who offer competitive digital platforms with added extras like financial wellbeing services, enhanced investment options and lower fees.  This makes them attractive alternatives for employers who want to change their pension solutions.

So, is NEST still the best?

The response will vary based on a number of factors.  NEST is still an excellent pension solution for:

• Small businesses and new companies that need a basic Auto Enrolment solution.
• Employers with limited admin capacity.

The following types of businesses may find other pension solutions better than NEST:

• Businesses wanting more tailored investment choices or employee engagement tools.
• Savers who want greater control over retirement income options, such as income drawdown.
• Savers approaching retirement age who do not want to be locked into a high exposure to fixed interest assets.

Final thoughts

Since 2012, NEST has achieved its purpose by establishing workplace pension access for millions of UK workers. It remains straightforward and inexpensive while maintaining excellent management. The pension market has experienced changes during the past few years. Several providers now provide attractive pension alternatives with additional features.

The Smith & Pinching Business Team can provide a thorough examination of your pension options.  Contact us today. Your enquiry is without cost or obligation and can be either face-to-face or online at a time to suit you.