NESTs and pensions (UK).

    A few big changes have been taking effect in the UK when it comes to 'State Earnings Related Pension Scheme' (Serps). Up until April 2012, people retiring would get their state pension PLUS any private pension payouts on top of this. However, this has now changed as the Govt. attempt to rein-in spending on benefits.
For those who retire after April 2012, any private pension pay-outs are deducted from the state pension. What this means is that if you receive the state pension of £145 p/w and also get £50 from a private pension, then instead of receiving £195 p/w, the DWP will reduce the state pension by £50 p/w so you will be no better off.

    This is designed to reduce the amount of benefits being shelled-out. The trouble with this is that if your pension pay-out p/w is below a certain limit, you are entitled to claim 'Pension Tax Credit' which in turn, gives you entitlement to Council Tax Benefit and Housing Benefit, so will in the long term cost the Govt. even more in benefits.
Their answer to this is a new scheme called 'National Employment Savings Trust' (or 'NEST'). This came into force in October 2012 and affects all employed persons over the age of 22.
The idea of the scheme is that each person employed by a company (what's known as 'PAYE') will automatically be enrolled in the scheme with a % of their earnings being added to the pot. Their employers also have to contribute an equal amount. The hope is that the pot will grow to provide a pension equal to, or greater than, the state pension at the time of retirement.

    Unlike it's predecessor from the late 1980's which encouraged people to opt out of SERPS and have the DWP send their pension contributions to a private pension provider's fund, NEST is run as a Non-Governmental Public Body, or, in simple terms, it is a Public Body that answers to, but is independent of, Government control. It's aim being to invest your pension contribution (collected as part of your NI deductions) along with your employers contribution and any cash top-ups you wish to add with the aim to beat the rate of inflation (unlike the old opt-out scheme which had a minimum pay-out equivalent to the state pension at the time of retirement built into the contract)
If this works, then when you retire, you should have a large weekly pension to look forward to.
Of course, there are charges, but these are fixed and are 1.8% of all the cash you invest each year taken as commission along with an Annual Management Charge of 0.30% deducted from the value of the total pot at the end of each year (as the pot grows, so does the AMC).

    Will this scheme work?. Well, time will tell. With both employee and employer putting-into the pot the only thing that can go wrong is if the wheels fall-off and I cannot see that happening. There will of course be big losers, these are almost certainly going to be the Private Pensions Providers who will in all likelyhood see their customers make their private pensions 'paid-up' before concentrating on the NEST scheme as it offers a much better return on a £ for £ basis.