Top Alternatives To A Nest Workplace Pension

Is Nest A Good Workplace Pension?

The scheme that works best for your company will depend on what you need from it. Nest is a popular pension option for small and medium-sized businesses.

Many chose Nest for ease of setup and fulfilment of legal obligations. But it might not be an effective scheme for all business types.

Nest might not be the best option for larger businesses, or those paying high salaries or enhanced pension contributions. It’s better matched to businesses whose primary objective is to meet their lawful obligations and those employing seasonal and/or temporary staff with a high turnover rate.

Disadvantages Of Nest

There are several disadvantages to Nest pension schemes, including:

Could Be Subject To Inheritance Tax

Should an employee die before accessing their pension savings, inheritance tax may apply.

If they’ve nominated someone to receive their savings, the pension pot will form part of their estate. As a result, the employee’s assets become liable for inheritance tax.

Expensive Charging Structure

Nest can be an expensive option for those paying in regular contributions. There is an Annual Management Charge of 0.3% but there is also a contribution fee which is set at 1.8%.

Nest is the only pension provider to charge a contribution fee.

An employee contributing £500 a month with a pension worth £50,000 would pay £258 a year. This covers the contribution fee and Annual Management Charge.

This additional contribution charge, when compounded over the many years to retirement, can have a significant impact on the employees’ overall retirement fund value.

Limited Fund Range

Where Nest was introduced as a fallback, the investment range is very limited. Nest has only 7 funds available and very limited options for those wanting Ethical or Sharia Investments.

There are 7 strategy types:

• Default growth
• Higher risk
• Ethical
• Lower growth
• Sharia compliant
• Pre retirement
• Guided retirement.

Does Not Support SMART Salary Sacrifice

Employers who want to support their employees as much as they can when it comes to saving for retirement can ensure employees maximise their contributions and tax relief with SMART Salary Sacrifice contributions.

As it stands, Nest does not support SMART Salary Sacrifice although they do support Simple Salary Sacrifice.

Limited Communication To Promote Scheme

Many of the best Workplace Pension scheme providers offer a whole suite of supporting communication to help you educate your staff on the benefits of saving for retirement.

These communications can include template emails, posters, infographics, videos, and calculators. There is less support from Nest and you will need to undertake a lot of the communication yourself.

Factors To Consider When Looking To Switch From A Nest Workplace Pension

As we mentioned, a Nest pension scheme may be suitable for some businesses, but not all. It’s often the default option and many employers don’t consider the alternatives.

You can switch Workplace Pension providers if your existing scheme isn’t the best fit. At Drewberry™, our employee benefit advisers can help you find the right Workplace Pension scheme.

We can also help set it up and build out your communications strategy. If you’d like extra help with your Workplace Pension, don’t hesitate to get in touch with us by calling 02074425880 or email us at help@drewberry.co.uk.

Here are some factors to consider when switching from a Nest pension to another provider. These can help you find the best fit for your company and employees.

How Much Does The Scheme Cost?

Employee benefits don’t come for free. It costs an employer to offer a Workplace Pension. Being aware of the potential costs is important, as you’ll need to factor them into your budget.

Set Up Fees

How much a pension scheme costs to set up depends on factors, including:

• The pension provider you have chosen
• How much external support you need
• Payroll configuration.

Some pension providers will ask for a one-off fee to cover the setup of your Workplace Pension. This will vary in price depending on the pension provider. For example, one requires a £500 setup fee, plus VAT, which is lowered to £300 if you use a financial adviser.

Not all providers have a setup fee. Some opt for monthly fees or annual charges instead, and others do not charge a fee at all.

Cost of Financial Adviser

Setting up a Workplace Pension scheme can be challenging. Many companies choose to work with an adviser as a result. An adviser can help you set the pension up and ensure it meets the legal obligations. Receiving guidance from an adviser will cost. The price of which depends on the amount of support you need.

Cost of Payroll Configuration

Most payroll software is compatible with auto enrolment. But if it isn’t, configuration may be necessary. It also needs upkeep to ensure employees are enrolled as soon as they become eligible. There are companies you can outsource payroll tasks to for a monthly fee, which may be of use if the admin is too hefty.

Ongoing Costs

It’s important to review your Workplace Pension regularly to make sure it’s still valuable. As an employer, you can do this yourself. But support from an independent financial adviser can ensure you’ve ticked all the boxes.

The cost of external support will depend on:

• The level of support you need
• Your business size
• How long you need support for.

You might face hourly rate charges between £70 and £350. Some do charge a setup fee, though, which can be in the thousands, to cover ongoing support.

Employers may also have to pay fees every month to cover the management and running costs of the scheme. This depends on your chosen provider. For example, Aviva charges between £30 and £50 a month. You’ll get a discount if you’re not using all the provider’s services.

Annual Management Charge

Most Workplace Pension providers charge an Annual Management Charge (AMC).

Nest has a 0.3% AMC on the total value of the pension fund, for example. It also includes a 1.8% contribution charge, which can really start to add up with a highly paid workforce.

By law, the AMC charge cap is 0.75%. You may find that your chosen pension provider has a single cost in the AMC rather than separate costs for scheme set-up and other services.

Which Tax Relief Method Is Best For Your Company?

Income Tax and NI will apply to pension contributions depending on how the scheme is set up. As an employer, you’ll need to consider how the tax works and which tax relief method is most valuable to employees.

There are several ways HMRC can tax your company pension scheme. This determines how and whether your employees save money on their tax contributions.

• Relief At Source (RAS)
• Net Pay
• Simple Salary Sacrifice
• SMART Salary Sacrifice

The net pay tax relief method may not be suitable for low earners. If they earn below the personal allowance of £12,570 a year, they aren’t eligible for tax relief.

Nick Nelms
Senior Employee Benefits Consultant

Can You Utilise Salary Sacrifice?

Companies can use salary sacrifice for their workplace pension schemes. Salary sacrifice works by an employee sacrificing part of their gross monthly pay for a non-cash benefit, like a pension contribution. It doesn’t lower their take-home pay and provides tax savings for both the employer and employee.

The money saved by the employee is either added to their pension fund or take-home pay. The money saved by the employer is either directed to the employee’s pension fund, retained by the employer, or a mixed economy of the two.

Many companies take the opportunity to move to Salary Sacrifice when they look at alternatives to Nest.

Depending on the size of your workforce, there are potentially thousands of pounds to be saved by switching to salary sacrifice both for the employer and employee.

Is There A Variety Of Investment Funds?

Workplace Pension scheme providers will offer many investment options. But each provider will use its own default fund unless employees choose another fund.

When comparing Workplace Pension providers, check the variety of investments they offer. Do they have any ethical or Sharia-compliant funds? A range of options means employees can invest their money in a fund that suits them. They might prefer to invest in a fund with higher-risk levels, for example. It also provides extra value and makes a pension more appealing.

Is Your Business Eligible?

Some Workplace Pension providers may place restrictions on which businesses are eligible. This tends to be based on the number of employees your company has. Major providers typically have a 5 employee minimum. This refers to how many employees are employed, not enrolled in the scheme.

The type of employee plays a part too. Nest, for example, is best for businesses hiring temporary and seasonal staff as it’s low risk. Companies with high turnover might not be eligible for major providers due to the administration and risk involved.

Top Workplace Pension Alternatives To Nest

Nest isn’t the only company pension scheme on the market. Many companies might have picked this scheme to quickly fulfil their auto-enrolment requirements.

The problem with this approach is that they might not have considered other options. With that in mind, here are some Workplace Pension alternatives to Nest.

Provider Overview
Aviva was founded in 1797, but the brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC. It offers a multi-employer defined contribution master trust pension scheme for all types of companies to use.
Pension Plan Information
Type Of Scheme	Group Personal Pension or Group Self-Invested Personal Pension
Employer Type	All
Business Size	Might not be suitable for small business due to the large scale of Aviva
Tax Relief Method	Relief At Source Master Trust available through Net Pay.
Salary Sacrifice Options?	Yes – SMART & Simple
Investment Fund Options
Default Fund	My Future My Future Focus Stewardship funds.
Number Of Funds Available	280+ for Group Personal Pensions or 80 for Group Self-Invested Personal Pension
Ethical Funds	23 for Group Personal Pensions or 13 for Group Self-Invested Personal Pensions
Sharia Funds	1 – Aviva Pension HSBC Islamic Global Equity
Costs & Charges
Annual Management Charge (AMC)	Capped at 0.75%
Additional AMC	0.15-0.16% for Stewardship fund
Set Up Cost For Employers	£0
Monthly Fee For Employers	£30-£50 depending on scheme size & proposition
Financial Strength & Awards
Agency & Rating	S & P – AA- (Stable)
Awards	Pension Provider of the Year 2020 – Pensions Age Awards Gold rating from Benefits Guru for Workplace Savings and Retirement proposition Defaqto 5 Star Rating for Workplace Pensions and for Drawdowns.
Provider Overview
Aegon was founded as Scottish Equitable in 1831 in Edinburgh and is still headquartered in the city. Dutch insurer Aegon N.V. bought a 40% stake in Scottish Equitable in 1994 and became a 100% stakeholder in 1998. It offers a defined contribution master trust scheme.
Pension Plan Information
Type Of Scheme	Group Self-Invested Personal Pension
Employer Type	All / any industry
Business Size	Suitable for all businesses
Tax Relief Method	Relief At Source
Salary Sacrifice Options?	Yes – SMART & Simple
Investment Fund Options
Default Fund	Aegon Workplace Default
Number Of Funds Available	4500+ for Group Self-Invested Personal Pensions
Ethical Funds	200+ options, including Ethical Cautious, Ethical Managed, and AM Ethical Corporate Bond
Sharia Funds	1 – Aegon HSBC Life Islamic Global Equity
Costs & Charges
Annual Management Charge (AMC)	Dependent on scheme profile
Additional AMC	Platform charges apply
Set Up Cost For Employers	£0
Monthly Fee For Employers	£0
Financial Strength & Awards
Agency & Rating	S & P A+ (March 2022)
Awards	Corporate Adviser 2022 – Best Group Pension Provider Moneyfacts – 2020-2021 Best Group Pension Provider 2021 Financial Adviser Service Awards – 5 stars for Pension Service (13th year running) Defaqto 5 star rating for Workplace ARC SIPP.
Provider Overview
Now:Pensions is the UK’s third largest provider of automatic-enrolment workplace pension schemes. Set up by APT of Denmark, it serves over 30,000 businesses and 1.7 million pension members.
Pension Plan Information
Type Of Scheme	Master Trust
Employer Type	All
Business Size	Best suited to small businesses
Tax Relief Method	Net Pay
Salary Sacrifice Options?	No
Investment Fund Options
Default Fund	Diversified Growth Fund
Number Of Funds Available	Very limited
Ethical Funds	Has zero ethical options but incorporate Responsible Investing objectives into default options
Sharia Funds	No options available
Costs & Charges
Annual Management Charge (AMC)	0.3% of the value of an employee’s savings
Additional AMC	N/A
Set Up Cost For Employers	£0
Monthly Fee For Employers	£36 plus VAT (if working directly with Now:Pensions)
Financial Strength & Awards
Agency & Rating	S & P AA- (Feb 2022)
Awards	Best Pension Provider – 2020.
Provider Overview
Royal London began as a friendly society in 1861, later changing to a mutual society in 1908. Today, Royal London is the UK’s largest mutual life, pensions and investment company.
Pension Plan Information
Type Of Scheme	Group Personal Pension
Employer Type	All
Business Size	All
Tax Relief Method	Relief At Source
Salary Sacrifice Options?	Yes – SMART & Simple
Investment Fund Options
Default Fund	Balanced Lifestyle Strategy (drawdown)
Number Of Funds Available	180+
Ethical Funds	1 true ethical & 6 ESG, including RLP Sustainable Leaders, Sustainable World Trust, and Ethical Bond
Sharia Funds	1 – RLP/HSBC Islamic Global Equity
Costs & Charges
Annual Management Charge (AMC)	Capped at 0.75%
Additional AMC	None
Set Up Costs For Employers	£0
Monthly Fee For Employers	Can apply typically for schemes with low average contributions
Financial Strength & Awards
Rating & Agency	Moodys A2 (July 2022)
Awards	Money Marketing – 2020 Company Of The Year 2021 Financial Adviser Service Awards – 5 stars for Pension Service (13th year running) 2021 Financial and Technology Research Centre – Workplace Pensions – Gold & Auto Enrolment – Gold Defaqto 5 star rating for Workplace Pensions, Personal Pensions and Drawdown.
Provider Overview
Scottish Widows dates all the way back to 1812 with an original remit of setting up a general fund to protect the assets of widows and the female relatives of fund-holders. It has nearly 6 million customers, providing a range of pension and protection products.
Pension Plan Information
Type Of Scheme	Group Personal Pension
Employer Type	All
Business Size	Best for medium-to-large-sized businesses
Tax Relief Method	Relief At Source
Salary Sacrifice Options?	Yes – SMART & Simple
Investment Fund Options
Default Fund	Scottish Widows Pension Investment Approach
Number Of Funds Available	150+
Ethical Funds	6, including Scottish Widows Ethical CS7 and Scottish Widows Environmental CS7
Sharia Funds	1 – Scottish Widows Sharia CS7
Costs & Charges
Annual Management Charge (AMC)	1%
Additional AMC	N/A
Set Up Cost For Employers	£0
Monthly Fee For Employers	£0
Financial Strength & Awards
Agency & Rating	IFS A+ (Nov 2022)
Awards	Workplace Pension – GPP, Workplace Pension – Group SIPP Retirement Saver, Workplace Pension – Master Trust = Defaqto 5 star rating 2022 Pensions and Protection – Star Financial Adviser Service Awards 2021.
Provider Overview
The People’s Pension is one of the UK’s largest defined contribution pension scheme providers. It’s available to any size company in any industry, but smaller businesses may find it more suitable.
Pension Plan Information
Type Of Scheme	Master Trust
Employer Type	All
Business Size	Smaller business may find it more suitable
Tax Relief Method	Default: Relief At Source Can switch to Net Pay.
Salary Sacrifice Options?	Yes – SMART & Simple
Investment Fund Options
Default Fund	Balanced Investment Profile
Number Of Funds Available	3 investment profiles 8 funds.
Ethical Funds	1 true ethical, all other funds have elements of ESG
Sharia Funds	1
Costs & Charges
Annual Management Charge (AMC)	0.5%
Additional AMC	N/A
Default Fund Charges	£2.50 annually
Set Up Fee For Employers	£500 plus VAT £300 plus VAT if employer goes through a business adviser.
Monthly Fee For Employers	£0
Financial Strength & Awards
Agency & Rating	B&CE – AKG B (strong) at February 2022
Awards	Defaqto 5 star rating 2022 Pensions Age – 2019 master trust offering of the year Pensions Expert – 2019 multi-employer DC provider of the year Corporate Adviser – Best Master Trust.

Need Help Switching From Nest?

Choosing the right Workplace Pension scheme for your company can be challenging. We know that pensions are a complex topic, but your Workplace Pension is essential for your employees.

If you’d like advice on switching your Workplace Pension provider, our pension experts can help you find the best scheme for your company. We’ll talk you through your options and support the set up process. Contact us today on 02074425880 or email at help@drewberry.co.uk.

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