• Money Mentor

The Facts About the NEST Pension

Updated: Aug 21

The NEST pension, or the National Employment Savings Trust, was introduced in 2012 to offer individuals in the UK an alternative to traditional pensions, as well as provide employers with assistance in fulfilling their legal duty to facilitate pension enrollment among their employees.

NEST Pension

The way the NEST pension works is that it automatically deducts money from employees’ paychecks and puts those funds toward the employee’s individual account, which is overseen by and managed by the government.


Here are some of the facts you should know about this new retirement plan.


Who can join the NEST Pension?

The National Employment Savings Trust (NEST) is a workplace pension scheme set up by the UK government. It’s designed to help more people save for their retirement. Any employer in the UK can offer their employees a NEST pension.


This includes businesses of all sizes, as well as public sector employers. Employees can choose to opt out of joining, but if they don’t they’ll be automatically enrolled into the scheme once they meet certain criteria.


What are the benefits of NEST?

The NEST pension is a retirement savings plan that offers several benefits to employees and employers. For employees, the NEST pension offers a tax-deferred way to save for retirement.


The money you contribute to your NEST pension account grows tax-deferred, which means you won’t pay taxes on it until you withdraw the money during retirement.


The NEST pension also offers employer matching contributions, which can help you save even more for retirement.


For employers, the NEST pension can help attract and retain employees. Employees who have access to a retirement savings plan are more likely to stay with a company longer than those who don’t have access to one.


When will I get my NEST Pension?

You will receive your pension when you retire. If you have not yet reached retirement age, your pension will be paid into a pot and you can use it to provide an income in retirement. You cannot get your pension before then without paying tax on it.



When will I know how much my pension is?

Your annual statement of contributions records how much money has been contributed by you and your employer each year. When you reach retirement age, this total amount is used to calculate what percentage of your salary was put into the pot over the years and what percentage should come out as a monthly payment.


Will I get tax relief on pension contributions?

You may be able to get tax relief on your contributions if you’re a basic-rate taxpayer. This means that for every 80p you contribute, the government will add 20p.


If you’re a higher-rate taxpayer, you’ll get 40p for every 60p you contribute. You will also get tax relief if you’re an additional-rate taxpayer.


Where will my money be invested?

Your money will be invested in a default investment strategy until you choose to change it. This strategy is designed to provide a balance of growth and income, and is automatically adjusted as you get closer to retirement.


NEST pensions are regulated by law which means that your pension fund can never be overcharged with excessive fees.


What can I do with my NEST Pension?

If you want to cash out your fund, you'll need to buy an annuity or use some other type of financial product like drawdown or flexi-access drawdown.


You'll also need to pay tax on any earnings made during your lifetime if they're not rolled over into another pension arrangement.


How much could I earn in the long term?

Assuming you're employed and making contributions to a NEST pension, you could potentially earn a lot in the long run.


For example, if you make £10,000 a year and contribute 5% of your salary, after 40 years you could have a pot of over £400,000.


This is based on an annual return of 5%, which is what most people currently get from their workplace pension. If you're self-employed, you can still contribute to a NEST pension and receive tax relief on your contributions.


Can I leave, transfer or draw down my savings before retirement age?

You can leave your savings in the Plan until you retire, transfer them to another registered pension scheme or take them as a cash lump sum. If you choose to take your savings as a cash lump sum, you'll need to pay income tax on the money you withdraw.


You can usually only access your pension savings from age 55 (57 from 2028). However, there are some circumstances where you may be able to access your savings early, such as if you're diagnosed with a terminal illness.


Do I have to make regular payments?

You don't have to make regular payments into your NEST pension, but if you want to, you can. There are three different ways to make payments: monthly, quarterly, or annually. You can also make a one-time payment. If you're self-employed, you can make contributions as often as you want.


NEST Pension scheme conclusion

After much research and contemplation, I've come to the conclusion that the NEST pension scheme is one of the best options available for low to medium earners. It's a great way to save for retirement, and it offers peace of mind in knowing that your money is well-protected.


If you're looking for a retirement savings plan, I highly recommend giving NEST a try.


Not only will you receive a tax relief on contributions up to £40,000, but you'll also be investing in stocks and shares which are capable of growing in the long term.


With a starting investment amount as low as £2 per week, the possibilities are endless with NEST!


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