Nest is Britain’s biggest pension scheme. But is it any good?

If you have a workplace pension, it’s likely your money is controlled by a company called “Nest”. This stands for “National Employment Savings Trust”, which is a government-backed pension scheme. 

More than 11 million workers save into this “defined contribution” pension scheme, which invests your money in a mix of stocks and bonds, so that eventually your pot can grow big enough to fund your retirement. 

The Government set up the Nest scheme in the early 2010s to help deliver its “auto-enrolment” programme. This means Nest has a “public service obligation”, like the BBC or NHS, to make sure every British employer has access to a high quality workplace pension. 

But is Nest any good? There is stiff competition from rival providers such as Now Pensions and The People’s Pension.

More people are also turning to self-invested personal pensions, or “Sipps”, a type of investment account which gives you complete control over how your retirement savings are invested. 

Here, Telegraph Money breaks down how the £33bn Nest fund has performed so far, how its bosses decide where to invest your retirement savings and how its fees work. 

How does Nest compare with other pension funds?

Unless you make an active decision about where your money is invested, your Nest pension will be invested in a “default” fund. The returns your savings achieve will vary according to your age, as the funds with a later target retirement year will take on riskier investments. 

This could mean higher returns when the market is doing well, but much lower or even negative returns when it is going through a downturn. 

Nest approaches this through four different stages. The first is the “Foundation” phase, where in a saver’s early twenties the fund will focus on steady growth and avoiding sharp losses of money. 

This is designed to help younger members to get into the habit of saving regularly and not being spooked by market falls, although critics have suggested that avoiding risk at this early stage of an investment journey risks missing out on possible returns.

The second is the “Growth” phase, when Nest will focus on growing your money as much as possible from your mid-twenties and older. The official target is to beat inflation and to add at least an additional three percentage points to your savings, after charges. 

For example, if you had £1,500 saved with Nest, after 10 years in the growth phase it would try to grow that to £2,495, even without any top ups.

The third phase is “Consolidation”, around ten years before you expect to retire and when your money will start to move out of higher risk markets. Nest will still try to keep your money rising in line with inflation, but there likely will not be any big jumps in value from this point.

Finally is the ‘Post-Retirement’ phase. If you have less than £10,000 saved, you will be moved into the Nest Post Retirement Fund, which is designed to be a temporary holding place in low risk investments. 

If you have more than £10,000, it will be moved into the Nest Guided Retirement Fund. This allows you to stay invested and still be able to access your money.