NEST pensions?

[WilsonFrickett]

So after 3 full years of freelancing it's highly unlikely I'll ever return to 'proper' employment, so I think it's time to get a pension. The NEST scheme is the new government scheme that employees without pensions have started to get enrolled in. You can join it as a self-employed person, save flexible amounts depending on your income, and basically just manage it yourself like any other online account.

Sounds too good to be true? Anyone got any insight/experience? My thoughts are If its good enough for all the employed people, its good enough for me. AND I won't have to go and find a financial advisor (bonus).

Any thoughts anyone? Anyone got one?

I'm no expert on NEST, but the required minimum contributions for employees are very very low and so I'd consider taking advice to make sure you're putting in enough.

I have absolutely no intention of putting ANY money into ANY pension schemes.
I am piling money into my ISA funds and then other savings
so that I am in control

unless you earn WAY into the 40% band, the tax break is just not worth the risk of the absolutely crap returns on DC pensions (38 years retirement just to get your contributions back)

I've only got what I've got Stokes so anything is better than nothing IYSWIM.

So TiP you're still saving but putting it in other places?

Yup.
THe return rates on pension schemes with the charges permitted in the UK are absolutely and utterly crap.
Very, very few people are yet retired ONLY on DC pensions - and the uproar will be astounding once people realise quite how crap they are for anybody under the 40% band and most people above it.

I use my ISAs - which will be tax free when I pull the money out
and have various other options that I'll explore when my mortgage finishes this autumn

We reckon my DC pension will be around a tenth of my husband's DB one. of course, it'll be closed long before we retire, but still.

OK it sounds like I need some advice then. Sigh yes I admit the reason I was considering this was it looked really easy to do

So next question, if I go to an IFA will they automatically try to sell me a pension? Is there a way to get properly unbiased advice, ie starting from a point that I don't actually know what I want?

Wilson
read Moneysavingexpert, read the forums, read the financial press
but frankly, make sure your ISAs are filled to the top in the mean time

I think you need to start by considering:

(a) how much you'll need each year in retirement for bills, food & holidays
(b) how long you expect the money to last you, ie the time between stopping working and dying.

Then you need to try and build up a capital that you can draw on for income when you stop working. The amount of that capital will be (a) x (b). Then some added on if you want to keep up with inflation. You can acheive this by saving in an ISA or putting it into a second property, for example.

It wouldn't be good to run out of money 5 years before you die if you live longer than you expected. This is why annuities (pensions) as a retirement income vehicle are popular as they guarantee you an income for life. But they are expensive and you have to view them like you do insurance, ie you pay for it, you never know if you're going to need it and/or get the full value back. But you benefit from the security of what it's providing you and this is a big plus for some people.

NEST as a vehicle is okay. But don't feel that putting 1% of your income into the pension fund will go anywhere near enough to support you in retirement. They estimate now that you need to pay in half your age if you want a decent income from an annuity. So if you were 40, you'd need to pay 20% into a pension.

I don't know if you could work on same basis if you were hoping to survive on a capital sum. ie If you saved 20% a year in an ISA, it would build up enough to live on in retirement. Perhaps Talkinpeace has worked that out.

You can find an IFA at www.unbiased.co.uk. They shouldn't automatically recommend a personal pension/ NEST, but they have to be able to show that the advice they've given you is in your best interests. If you're self-employed, I think SIPPs are quite popular too.

chica
a) I do not plan to fully retire, ever
b) putting 10-12,000 a year aside for later is more than most people pay into their pensions
c) once my mortgage is paid I'll be looking at other long term investments

but I have no intention of ever, ever locking money into an annuity.

A family member paid £100,000 for an annuity and died 35 days later, before it had paid out a single monthly cheque.
Their descendants lost out big time.

I'm not criticising your retirement planning and I know you have it sorted and are happy with what you are doing. But if someone does intend to retire fully, your own choices may not be suitable for them.

I was just curious if your capital building was aiming for a particular amount that you had calculated you'd need or if you were just saving the maximum you could afford.

Most people can't afford to put 10-12k into an ISA each year whilst paying off their mortgage, so an annuity is just one way of guaranteeing a lifetime income if they don't have enough capital to be comfortably sure of not running out before they die.

Yes, you could pay 100k for an annuity and die 35 days later or you could live for 30 years and receive 150k back in income over your retirment. Just because one can happen doesn't make it a bad option. It just makes it the chance you take in return for the security of a guaranteed income. Like insurance, as I said before.

But this is why IFAs have to take exams and be qualified to give advice as everyone's situation is different and their options vary as a result. So the OP needs to see an IFA and not necessarily rule out NEST but beware of the risks, pitfalls and other alternatives.