Using Nest to manage 2012 risk: five myths explained

The introduction of workplace pension duties is a year away, but we are still finding there is a lot of misinformation and confusion about employer duties and the role Nest plays.

Nest could be part of a pension solution that is right for your organisation in response to the new employer duties to be introduced from 2012.

The organisation has a public service obligation to accept any employer that wants to use us to meet their obligations.

With just 12 months until the first employers will have to comply, it is important you know enough about where Nest could fit with the pension arrangements you currently manage.

Here are five myths about Nest, and the reality of what Nest could offer:

Myth one: Nest is only for small employers

Nest is actually suitable for its target market no matter what size their employer and we have developed our systems in consultation with employers of all sizes.

This is one of the reasons why Nest could be part of your solution to the new 2012 employer duties.

It’s worth knowing you can use Nest in the following ways:

• As a sole scheme for all the workers in an organisation, if for example, there is no current pension provision in place;

• For a particular group of workers alongside an existing scheme already in place for a different category of workers;

• As an entry level scheme where there is an existing scheme that has a waiting period;

• As a base scheme to ensure compliance with the new employer duties, using another scheme to pay in further contributions.

Following feedback from large employers, we are also improving the ease of use for those who are managing large numbers of workers’ records.

Myth two: Nest isn’t a flexible option

The reality isemployers can contribute more than the minimum contributions legally required by law to Nest.

With Nest, employers can also choose how contributions are calculated and when they’re paid. Employers can base contributions on qualifying earnings or basic pay or any other definition of earnings they choose.

We also plan to continue developing more flexibility around the due date of contributions and their frequency, in order to align to more pay cycles.

Myth three: You can only use Nest for the minimum contributions

In fact, employers can contribute more than the minimum contributions required by law to Nest, as they can with any qualifying scheme.

Even with our contribution cap of £4,200 (in 2010/11 terms) there is headroom to pay in more than the minimum for most members.

For example, a member on average earnings – so earning approximately £25,000 a year – could contribute more than 16% of their total earnings to Nest without hitting the contribution cap.

Myth four: Nest is expensive and has complicated charges

The reality is that we have one low charge structure for all members, no matter what fund they invest in, or how much they contribute.

Our charge structure delivers at a level broadly equivalent to 0.5% annual management charge (AMC) for most members over their time saving in Nest.

Nest offers this same low charge to all members, and if they stop contributing for a period only the AMC is payable.

We also make our charges clear to members using pounds, pence and pictures and our approach means there should be no surprises – we are transparent and upfront about what members pay.

Our investment objectives describe the returns weare targeting after all charges have been deducted. All administration, legal and custodian fees are covered by our low charge.

Myth five: Nest’s investment approach is limited and inflexible

Nest has an investment approach designed specifically for its members, offering sophisticated dynamic risk management at a low charge.

The default option is the Nest Retirement Date funds – yearly target date funds with tailored phases aimed at taking the right amount of risk with members’ pots .

Nest also offers other fund choices to reflect different risk appetites and there is also an ethical fund and a sharia fund for members to choose from.

Members can also change funds and retirement dates at no extra charge.

Richard Bartlett is assistant director of distribution at Nest.