Even though it has been signposted for years, NEST members should have had a small moment over the weekend when they felt a small seismic shudder, because some new opportunities opened up for them on 1 April.
1. They can now transfer benefits into NEST;
2. They can transfer their funds out of NEST, and
3. There is no cap on the amount of contributions that they can pay in.
The first is actually more exciting than billed, because there is no contribution charge on transfers-in, so in reality for every £100 you transfer in, you will see £100 added to your funds.
For most providers this would be stating the obvious but, in this instance, it means that transferred in funds are treated better than normal contributions paid into NEST as those incur an additional charge.
The restriction on these areas were inserted at the outset to ensure that Nest to restrict Nest’s ability to distort the market, so we always knew that these were to be removed, but doubt whether many of Nest’s existing membership were aware; let alone cared. Possibly an even lower percentage of employers who chose Nest as their Workplace Pension Provider knew or took this into account when making their decision.
The transfer out easement is also useful, as no doubt there will also be a large number of deferred members of NEST who will transfer out a small pot to their current employer’s plan to aggregate their pot (or pots). This would actually be a good thing for NEST, given that it is uneconomic for all providers to be managing very small pots.
It also means that in the future people with large enough pots can transfer their benefits out at retirement to buy a broader range of retirement options than are currently available.
The third change is particularly interesting though because – if you believe that NEST has good investment outcomes and you don’t think the charge on normal contributions entering the scheme is too bad – high earners can now put more contributions into NEST than before.
This is potentially good for those individuals (if it means they are saving more), plus might simplify their pension savings if it means they don’t need 2 different providers to accommodate the previous contributions above the maximum inputs (although you could argue that they are not spreading their risk as well).
But it might also have the corollary effect of meaning that those individuals pay more attention to the pension provider that their lower paid colleagues are exclusively using.
One thing we know is that when the higher paid individuals have some skin in the same game as their lower paid colleagues then they make different decisions to when they don’t (hence the increased disinterest in DB schemes once the lifetime allowance meant that business owners were not in them anymore).
So, overall 3 positive changes.
As a non-NEST member, you might wonder why I care? Well, apart from the fact that as a taxpayer I have a vested interest in how successful NEST is, there is a statistically high chance that I am going to be a member at some point in the 20 plus years before I can take my State Pension (assuming that still exists then). So we should all care about how NEST develops.
But I’m also interested because, at pensionsync, I am part of the team that reviews Workplace Pension Providers and makes our views available for free for SMEs on the Pensions.Market. Unsurprisingly, we have updated the Pensions.Market now that these changes have taken effect.
More flexibility for members means a higher score. And these changes (coupled with a similar of upgrading of NEST to 5 stars by the ratings company Defaqto*) means that we now rate NEST as joint 3rd if you are an employer with fewer than 20 employees and 4th if you have more employees (and don’t mind paying an employer charge).
In fact, according to our ratings that would make them the joint best Master Trust.
When AE started out, I think everyone accepted that we needed a “Workplace Pension of Last Resort”, but we could have only hoped that it would be of good quality.
So, we should be delighted that a scheme set up to ensure that any employer always had an open door lives up to so much more than the “Last Resort” soubriquet and is up there in so many respects as the best.
However, at an individual employer level, this does not preclude the fact that for different companies with different employee profiles completely different choices would be appropriate in terms of choosing a Workplace Pension Provider.
Find out more about the different strengths and weaknesses at Pensions.Market.
*Pensions.Market incorporates the ratings of Defaqto within its overall scores, in acknowledgement that the Defaqto team have a wider range of skills and resources available to assess Workplace Pension Providers (and we are extremely grateful to Defaqto to allow us to do that).
ePayMe uses NEST for all their contractors as we like to provide flexibility in our pension scheme and other financial services. To switch to ePayMe, or to find out more information on your pension scheme, contact us today on 01252 863700.