Jonathan Watts-Lay of WEALTH at work addresses a Money Observer reader’s question about the workplace pension scheme.
I am thinking of opening a pension fund, and I see the government has set up the National Employment Savings Trust (Nest) scheme. It looks quite good and it’s open to the self-employed, which is what I need. Could you tell me what the drawbacks of the Nest scheme are, compared with other traditional pension funds? For example, I see it doesn’t offer drawdown or the option of an in-house annuity.
Steven Little, by email
Jonathan Watts-Lay, director, WEALTH at work, replies: You’ll need to set up your own contributions to the Nest scheme, which can easily be done online.
Potential drawbacks could include a lack of fund choice and the costs involved compared with other providers. Additionally, all your savings in your Nest pension will be considered part of your estate for inheritance tax purposes, which means that your pot may be subject to inheritance tax. This issue does not arise with other types of modern pension. It’s therefore always wise to research other providers’ offerings to see how they compare before enrolling in a scheme.
Although Nest doesn’t offer drawdown or the option of an in-house annuity, this is not necessarily a bad thing. That’s because it is really important that you choose the right options for you at retirement, which means it’s vital to shop around. Many people find that the best deal for them is not from their current provider.
If you need help with a tax, pension or financial planning problem, please email: firstname.lastname@example.org
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