In this article, we look at the National Employment Savings Trust pension, better known as NEST. We explain what a Nest pension is, who can contribute to a Nest pension and whether it is any good. We also explain how to opt out of a Nest pension if you have been auto-enrolled and how you can transfer your Nest pension to another pension provider if you so wish.
If you are an employer wishing to know more about how auto-enrolment works, you may wish to speak with pension specialist Penfold*. It offers a free 1-to-1 auto-enrolment consultation with support and advice tailored specifically to your business.
What is a Nest pension?
The National Employment Savings Trust (NEST) is a pension provider that was established in 2010 as a result of pension reforms and the introduction of the Pensions Act 2008. It was set up by the government to help deliver its auto-enrolment programme, a government initiative ensuring all eligible workers have access to a defined contribution workplace pension scheme. Rather than being owned by shareholders, Nest is a public service operation, established to serve the British public, much like the BBC and NHS.
Who can contribute to a Nest pension?
Nest is a workplace pension scheme and the majority of members join as part of their company pension scheme. Nest does however allow self-employed workers to join the scheme and it is also possible to join Nest if you have received a share of a partner's retirement pot as part of a divorce settlement. We summarise the three ways you can join and contribute to a Nest pension below
Contribute to Nest via your workplace pension scheme
Those eligible for auto-enrolment will be automatically enrolled and provided with membership details as well as how to opt out if they choose to do so. We explain opting out of a Nest pension and how to do it later in this article.
To be eligible for auto-enrolment a worker must:
- Be at least 22 years old
- Be under the state pension age
- Earn at least £10,000 per year in the tax year 2024/25
Those not eligible for auto-enrolment may still be eligible to join the company pension scheme and so it would be worth speaking to the person who handles employee benefits.
Contribute to Nest if you are self-employed
Both employed and self-employed workers can contribute to a Nest pension. As there isn't an employer, you'll be responsible for setting up your own contributions. You can contribute as often as you like, so long as you meet the minimum contribution level of £10 each time.
Contribute to Nest if you have received a divorce settlement
You can join Nest if you have received a share of an ex-spouse's Nest retirement pot via a pension sharing order. If this is the case then Nest will receive a copy of the order and contact you to explain the next steps. Your two options will be to either transfer the pot to a provider of your choice or leave it with Nest and become a member.
Can you opt out of a Nest Pension?
Yes, opting out is simple to do but you should think carefully before doing so. As the Nest pension scheme is a defined contribution pension scheme, it means that you benefit from your employer contributing to your pension pot. Opting out of Nest would mean that you lose this benefit.
How to opt out of a Nest pension
After being auto-enrolled by your employer you will have an opportunity to opt out of the Nest pension. You'll have one month to opt out, starting 3 working days from the date that your employer enrolled you into the scheme. The opt-out period will be detailed in your welcome letter from Nest. Once you have opted out, Nest will close your pension account and any contributions will be refunded to your employer within 10 working days. The money should then be returned to you in your next pay cycle.
Can you opt out of a Nest pension after the opt-out period has ended?
No, you can't opt out once the opt-out period has ended. You can however still contact Nest to confirm that you wish to stop contributing to the scheme. You won't be eligible for a refund and any money in your Nest pension would remain invested. You would be able to gain access to the money from the age of 55.
If you have previously been auto-enrolled into a Nest pension and opted-out, you will be automatically enrolled again every 3 years, so long as you continue to meet the eligibility criteria.
How does a Nest pension work?
You will receive a welcome pack from Nest after being auto-enrolled by your employer. You'll need to create your online account and complete some personal details, including your address, date of birth and potential beneficiaries. You'll also have the opportunity to opt out should you choose to do so.
There are a few different ways that your employer can choose to deduct your pension contributions, however, the most popular method is through 'qualifying earnings'. Using the 'qualifying earnings' method is the standard way to work out the legal minimum contributions and will ensure that earnings through salary, overtime, bonuses and commission are all taken into account.
You'll contribute a minimum of 5% of your qualifying earnings (including commission, overtime and bonuses) and your employer will contribute a minimum of 3%, totalling 8% overall. Deductions are taken from your net salary (after tax and national insurance have been deducted) and you'll actually only end up paying 4% as the other 1% is paid into your pot by the government in the form of tax relief. If you are a higher earner, you'll need to speak to HMRC about claiming back additional tax relief on your pension.
| What you pay | What your employer pays | What the government pay | Total | |
| Contribution % | 4% | 3% | 1% | 8% |
To explain how pension contributions work in more detail, we have provided some examples in the tables below.
Nest pension contribution example
In the example table below we explain how qualifying earnings are established, based on a basic salary of £24,000. The person in the example also earns commission and bonuses.
Example - Qualifying earnings for Nest pension based on £24,000 salary (plus commission and bonus)
| Contribution | Amount |
| Monthly gross salary | £2,000 |
| Monthly commission | £300 |
| Bonus | £200 |
| Total qualifying earnings | £2,500 |
In the example table below we break down the total monthly pension contribution based on someone who has £2,500 qualifying earnings per month.
Example - Nest total monthly pension contribution
| Contribution | Amount |
| Employee contribution (equates to 4% of qualifying earnings) | £100 |
| Employer contribution (3% of qualifying earnings) | £75 |
| Tax relief (1% of qualifying earnings) | £25 |
| Total monthly contribution | £200 |
As you can see from the table above, the employee is only contributing £100 per month and yet the total pension contribution - when taking the employer contribution and tax relief into account - totals £200. This is what makes defined contribution pensions so attractive and why you should only opt out as a last resort.
It is worth noting that your employer may decide to deduct contributions via salary sacrifice. If this is the case, deductions will be taken from your gross salary, rather than your net salary. This has the effect of reducing your overall gross pay and means you will pay less tax and national insurance as a result. Salary sacrifice schemes do not attract the additional 20% tax relief as you have already received the tax benefit of a reduced salary.
Can you choose where your Nest pension is invested?
Yes. When you first join Nest you will be automatically invested in a 'Nest retirement date fund' that best matches your expected retirement year. The retirement date funds are designed to maximise returns by making the right investment choice at key points in your lifetime. You can however choose to move to whichever pension fund suits you best.
Nest Pension investment choice
Nest has seven funds to choose from, two of which are reserved for those who are close to retirement. The funds are as follows:
- Nest retirement date fund
- Nest lower-growth fund
- Nest higher-risk fund
- Nest ethical fund
- Nest sharia fund
- Nest pre-retirement fund (Only available to those approaching retirement)
- Nest guided retirement fund (Only available to those approaching retirement)
It is worth exploring each of the funds as they give you the freedom to take more or less investment risk, invest ethically or even invest in accordance with your beliefs or faith.
Nest Pension performance
We provide the annualised 5-year performance of the five main Nest fund choices below. This is the average amount of money earned by the fund each year, over the last five years.
| Nest Fund | Annualised 5-year performance |
| Nest ethical fund | 6.4% |
| Nest lower growth fund | 1.5% |
| Nest higher-risk fund | 7.5% |
| Nest sharia fund | 17.4% |
| Nest retirement date fund (Growth phase) | 7.0% |
Correct as at 30.06.24
Who manages the Nest pension funds?
Unlike some pension providers who use specialist investment managers such as Legal & General and BlackRock, Nest has its own team of in-house investment managers. On its website, Nest says "At Nest we have a team of experts whose only job is to look after your money. They make all the important decisions about where your money goes and make sure it is as secure as possible. They take the responsibility of safeguarding your money very seriously and do all they can to get the best results. Because they are Nest members too".
How much do you have to pay into a Nest pension?
Nest is a defined contribution auto-enrolment pension scheme which means your employer has to pay in a minimum of 3% of your salary each time you get paid, whether that is weekly, four-weekly or monthly. In addition, employees have to contribute a minimum of 5% of their qualifying salary, totalling 8% overall. Both employees and employers are able to pay more than the minimums if they wish.
There are no minimum salary contributions if you are self-employed however there is a minimum contribution of £10 per contribution.
How much does a Nest pension cost?
Nest charges 1.8% on contributions, plus an annual management charge of 0.30%. To help you understand the real cost of investing with Nest, we have provided a summary table below based on varying monthly contributions and pot sizes.
Total cost of investing in Nest pensions
| Monthly contribution and total pot value | Nest annual contribution charge | Nest annual management charge | Nest total annual fees |
| £50 per month with a pot worth £5,000 | £10.80 | £15.00 | £25.80 |
| £100 per month with a pot worth £10,000 | £21.60 | £30.00 | £51.60 |
| £250 per month with a pot worth £25,000 | £54.00 | £75.00 | £129.00 |
| £500 per month with a pot worth £50,000 | £108.00 | £150.00 | £258.00 |
It is worth noting - especially if you want to compare the cost of pension providers - that Nest is one of the only providers that charge a monthly contribution fee. That being said, its annual management charge is relatively low. To help you better understand how the cost of Nest compares, we have provided a comparison table below. For the purposes of the comparison, we have selected two pension providers that offer pensions to the self-employed and who offer a similar number of pension funds to invest in.
Nest vs PensionBee vs Penfold - Cost comparison
| Monthly contribution and total pot value | Nest annual fees | PensionBee (Tracker plan) annual fees | Penfold (Standard plan) annual fees |
| £50 per month with a pot worth £5,000 | £25.80 | £25.00 | £37.50 |
| £100 per month with a pot worth £10,000 | £51.60 | £50.00 | £75.00 |
| £250 per month with a pot worth £25,000 | £129.00 | £125.00 | £187.50 |
| £500 per month with a pot worth £50,000 | £258.00 | £250.00 | £375.00 |
Check out our PensionBee and Penfold reviews for more information.
In May 2021, pensions minister Guy Opperman announced proposals to ban combination charging and instead implement a single charging structure across the auto-enrolment market. While transparent costs are likely to make cost comparison easier, some savers could be worse off as a result.
What happens to a Nest pension if you decide to move jobs?
If you move to a new employer, you should check to see if they are subscribed to Nest or if they may consider doing so. We've provided some guidance below on what you can do with your Nest pension when you change jobs.
You have changed job and your new employer uses Nest
It is likely your new employer will automatically enrol you into Nest in order to fulfil their pension duties. If this is the case then you'll need to complete the form in the welcome pack that asks if you are already a member, together with proof of identification. Nest will then be able to marry the records and you can continue to invest in your chosen funds and add to your existing pension pot.
You have changed job and your new employer doesn't use Nest
If this is the case then your Nest pension pot will remain active and you are free to make additional contributions through your online Nest account. Additionally, you are free to transfer your pension pot should you wish to do so and that could be to your new employer's scheme or perhaps into a Self Invested Personal Pension (SIPP) with a provider of your choice.
You were previously self-employed and are now employed
If you previously contributed to a Nest pension as a self-employed member and are now employed, you can continue to contribute to your existing pension pot through your new employer. You'll need to complete the form in the welcome pack that asks if you are an existing member and provide proof of identification in order for Nest to combine the records.
You were previously employed and are now self-employed
You can continue to use your existing Nest pension account if you move from employed to self-employed, you'll just need to complete some details on the Nest website.
Can you transfer an existing pension pot into a Nest Pension?
Yes. Nest accepts pension transfers from any UK based pension scheme, so long as it is via a pension or credit transfer, early leaver cash transfer or is a transfer from a defined contribution scheme. It does not accept transfers from defined benefit schemes. The minimum pension transfer that Nest can accept is £50.
Can you transfer an existing Nest Pension to another provider?
You cannot transfer out to another pension provider if you are still actively contributing to your Nest pension. Once contributions to a Nest pension have stopped, however, you are free to transfer your pension to another provider and there is no cost for doing so. If you are considering transferring your Nest pension, then you may want to consider getting some financial advice and our article "10 tips on how to find a good financial adviser" may provide some guidance. If you are keen to take a more active role in managing your pension then check out our article "The best and cheapest SIPPs - low-cost DIY pensions".
Is a Nest pension any good?
Nest is a popular pension provider for small and medium-sized businesses as it is relatively straightforward to set up and it doesn't currently charge a fee to employers. In order to answer the question 'Is Nest any good', you need to understand the features that are most important to you. How much emphasis do you place on cost or investment choice? Is simplicity important to you? Are there adequate retirement options available to you? For many, Nest provides a simple pension solution; one that may not have even existed if it wasn't for the introduction of auto-enrolment. There may be better options available for those who want more investment choice or those that are close to retirement age. Below, we summarise the Nest pension pros and cons.
Pros and Cons of a Nest pension
Pros
- Government-backed and so your money should be safe
- Simple website using language that is easy to understand
- Low annual management charge (contributions are charged at 1.8%)
Cons
- Investment choices are limited
- Limited retirement options
- Customer service has attracted criticism
Nest pension reviews
Nest is rated as 'Great' on independent review site Trustpilot with a score of 4.0 out of 5.0 stars from almost 10,000 customer reviews. 61% of customers rate it as 'Excellent' with many saying that it is easy to use and understand. On the flip side, however, 20% rate it as 'Bad' with many saying they had issues trying to contact the support team at Nest.
Nest pension alternatives
There are other pension providers that cater for auto-enrolment, the largest of which are Legal & General, LifeSight and Standard Life. If you have been auto-enrolled into Nest by your employer however, it is unlikely that you will get a choice over which provider to go with. If you have an existing pension pot with Nest and are no longer contributing then you do have the option to transfer your pension pot to an alternative provider. Check out our article "The cheapest SIPP - the best value pension for you".
Nest pension summary
Nest provides a simple, cost-effective pension solution for employers and employees alike. Nest is a government-backed public corporation which means that it has no shareholders and so runs the scheme in the interest of its members. Nest provides users with a simple online dashboard that is easy to understand and allows members to easily switch between seven diversified pension funds. Those that are no longer contributing to their Nest pension pots and who want more investment choice may want to look elsewhere but for the majority, Nest provides a safe and straightforward way to manage their workplace pension. Small businesses looking to implement a new auto-enrolment pension scheme may also want to consider Penfold*, a specialist pension provider that can provide a bespoke service tailored to the specific business.
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