Written by Karen Bryan
Now that auto enrolment in the National Employment Savings Trust (NEST) has finally started, I’m interested to see how employees will react. There may be some surprised faces when employees observe that their net pay has decreased, after the deduction of their first NEST contribution. Although it won’t be that noticeable, with many employee deductions starting at 0.8% initially and gradually increasing to the full 4%.
The UK Government seem to be anticipating opt-out among workers being auto-enrolled into NEST. I can understand why lower paid workers may feel that they are already struggling to make ends meet on their pre-NEST take home pay. Others may feel that they don’t want their money to be tied up until they are at least 55 years of age.
Then there’s the issue of the uncertainly of what your NEST pension will be worth, as its value is based on the stock market. The BBC highlight that if a worker decides to stay in the NEST scheme, they should look at which type of investment fund is best suited to their requirements. There is a default fund for NEST contributions, which appears to go through three different phases; starting with investment mainly in Government Gilts, then going for shares with increased potential gain (and possible loss), then switching back to Gilts and cash as the holder approaches retirement. Now some people might prefer to go for more risky investments for a longer period and others, who are risk averse, may prefer to stay in Gilts and cash.
Employees’ NEST pension fund selection will also depend on whether they plan to purchase an annuity (which pays a specified amount per year for the rest of your life), or go for income drawdown (which allows you to take regular income from your still invested fund).
It all sounds pretty complicated for an uncertain return. Oh, for the simplicity and guaranteed value of a pension based on a percentage of your salary and your years of service. But you’ll probably have to find a job in the public sector to enjoy that particular employee benefit.