National Employment Savings Trust
The National Employment Savings Trust (NEST) is defined contribution workplace pension scheme in the UK. It was set up as part of the government’s workplace pension reforms under the Pensions Act 2008. Any employer can use NEST to meet their new workplace duties.
The Pensions Act 2008 established new duties that mean employers need to provide their UK workers with access to a workplace pension scheme that meets certain minimum standards. Some workers will be automatically enrolled into the scheme and others can ask to join.
NEST is one of the pension schemes that employers can use to meet their new duties. It’s been set up by the government as part of the reforms and is specifically designed for automatic enrolment. It’s a trust-based scheme, run independently from government on a not-for-profit basis.
NEST is a low-cost scheme that is free for employers to use. Members pay a 1.8 per cent charge on contributions plus a 0.3 per cent annual management charge (AMC). Together, the charges are broadly equivalent to a 0.5 per cent AMC. This gives members access to the sort of low charges enjoyed by people in large occupational schemes.
NEST has an annual contribution limit. It is reviewed annually and is currently £4,500 for the 2013/14 tax year. It also has restrictions on accepting and paying transfers of members’ existing pension rights. The Department for Work and Pensions (DWP) announced government proposals to legislate to lift the annual contribution limit from April 2017, and to remove these transfer restrictions on NEST to coincide with the launch of automatic tranfers.
More information on NEST is available on its website www.nestpensions.org.uk
NEST has an award-winning investment approach designed around the needs of its members. Members who are automatically enrolled into NEST are put into a NEST Retirement Date Fund, which is managed according to the life stage of members in it.
NEST Retirement Date Funds invest in three phases, with clear objectives for each one based on how far a member is from their NEST retirement date.
The Foundation phase is for people who join NEST when they’re still many years away from retirement. NEST’s research showed that younger members would react very negatively to falls in the value of their savings, so in this phase NEST concentrates on steadily building their retirement pot rather than exposing members to unnecessary risk. After charges this lower-volatility approach still aims to at least match inflation.
The Growth phase is where NEST concentrates on growing members’ retirement pots. Members could spend up to 30 years in this phase. It targets growth of over 3 per cent above inflation after all charges.
The Consolidation phase starts around 10 years before retirement. Here members’ pots are moved into types of investment that broadly reflect the way NEST expects members will want to take their money out. NEST expects each pot to grow by more than the cost of living during this phase but the primary focus is on securing a member’s retirement income.
Members can change funds at any time after enrolment if they want to.
Proposed by the Labour Government in a May 2006 white paper, the infrastructure for NEST was established through the Pensions Act 2008.
The creation of NEST - originally known as Personal Accounts - was one of the recommendations of The Second Report of the Pensions Commission – A New Pensions Settlement for the Twenty-First Century (2006) under the chairmanship of Adair Turner.
The Pensions Act 2007 established a transitional body, the Personal Accounts Delivery Authority (PADA) to advise on the implementation and launch of Personal Accounts. PADA consulted on various aspects of the final scheme before passing these responsibilities to NEST Corporation.
The current Chair of NEST Corporation is Lawrence Churchill. NEST Corporation’s chief executive is currently Tim Jones.
- Pensions in the United Kingdom
- Canada Pension Plan
- Pensions in the United States
- UK labour law
- Basic state pension
- http://www.dwp.gov.uk/docs/pensionsbillimpactassessment-final2.pdf - this is the impact assessment released in December 2007 for the Pension Bill 2008. It provides a complete appraisal of the reforms. There are also fact sheets on reactions from individuals and employers which have implications for the UK pension industry.
- http://research.dwp.gov.uk/asd/asd5/rports2009-2010/rrep558.pdf - Research document 4
- http://www.ifs.org.uk/publications/4386 - IFS PowerPoint presentation discussing the adequacy of these reforms
- http://www.ifs.org.uk/pr/personal_accounts.pdf - IFS press release
- http://news.bbc.co.uk/1/hi/business/8101097.stm - BBC - Personal account benefit 'small'
- http://www.retirementmadesimpler.org/Library/The%20Power%20of%20Suggestion-%20Inertia%20in%20401(k).pdf - THE POWER OF SUGGESTION: INERTIA IN 401(k)PARTICIPATION AND SAVINGS BEHAVIOR* - BRIGITTE C. MADRIAN AND DENNIS F. SHEA
- NEST Corporation official website
- Department for Work and Pensions - UK Government website containing details of the public consultation on the formation of Personal Accounts.[dead link]
- Pensions Policy Institute - publishing independent non-political research into UK pensions policy.
- Association of Member-Directed Pension Schemes (AMPS) - The principal body for discussing changes involving self administered pension schemes
- Aon Hewitt United Kingdom - Definition of Auto Enrolment
- Guardian Wealth Management - Workplace pension schemes are to be investigated by the Office of Fair Trading