Key featuresWhat you need to know about NEST

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Contents

Introductionpage 3

Key features of NEST page 4

What is NEST?page 6

How employers can use NESTpage 7

How NEST works for members page 10

Charges page 12

Investment approach page 16

How NEST is run page 19

More information and useful contactspage 21

This is not intended to be financial or other professional advice. Some of the areas this booklet covers are set out in the legal framework that governs NEST, known as the order and rules. We’ve taken care to make sure that where this booklet summarises the order and rules it’s as accurate as possible. It doesn’t cover everything and the order and rules will always take priority.You can read the full order and rules at www.nestpensions.org.ukIn this booklet we use the term NEST to refer to the scheme’s legal name, the National Employment Savings Trust. We sometimes also use it to refer to the scheme’s Trustee, the National Employment Savings Trust Corporation.

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Introduction

The Pensions Act 2008 sets out new legal duties for employers that started to be introduced in late 2012.

Employers will need to automatically enrol some or all of their workers into a workplace pension scheme that meets certain legal standards.

NEST has been set up to help employers comply with these new duties. We make automatic enrolment easy no matter how large or small your organisation.

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We’re ready for automatic enrolmentOnline tools like preset enrolment types and electronic member opt outs make it easier for employers to fulfil their duties.

Online and easy to use NEST is easy to manage online. You can carry out almost all processes through your online account, available 24/7. This includes enrolling members, setting up contributions and making payments.

No set-up chargesThere are currently no charges for employers to set up and use NEST. We also keep charges low for all members, which means more value for money on contributions from employers and their workers.

Clear communications and support for members NEST communicates clearly and transparently with its members and supports them as they save. They can get the key information they need from the website or our UK-based contact centre, which means fewer questions from workers and so less time spent addressing these issues for employers.

Delegated accessEmployers can create delegate accounts to allow other people to look after NEST for them. This could be someone within their organisation or an external service provider such as an adviser.

Award winning investment approach Our investment approach is aligned with recent guidance on automatic enrolment default funds from the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR). Clearly labelled fund choices all at the same low charge address the needs of a diverse workforce.

NEST can work alongside existing schemesAn employer can use NEST as their only scheme, but it’s flexible enough to work alongside an existing scheme.

Travels with the memberEmployers have no ongoing administration or responsibility for the NEST retirement pots of workers who leave their employment. With NEST every member has one retirement pot that they keep and can continuing contributing to whether they change employment, stop working or become self-employed.

Key features of NEST01...

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bers Clear communications

Our research shows pension jargon could put people off saving for their retirement. We are committed to making NEST easy to understand so we use plain language and provide information that’s designed to be straightforward.

Easy to use NEST is an easy to use online pension scheme that members can access whenever they want. By logging on to their online account they can check their account balance, switch their investment choice and use our Pension Calculator to see what they might get when they take their money out of NEST.

Puts the member in control Members deal directly with NEST when they want to change their contribution levels, switch funds or find out what’s happening with their account. This means they can make the decisions they need to without having to turn to their employer to make them happen.

An investment approach based on what members needWe’ve researched the needs of our members and asked them about what they expect from a pension scheme. Based on this we’ve created an investment strategy that adjusts the amount of investment risk for our members at every stage of their time with NEST.

Great valueNEST keeps charges low for all members. They pay the same annual management charge of 0.3 per cent whether they’re contributing or not, whatever fund they’re contributing to and our contribution charge is just 1.8 per cent. These cover all legal, administration and custodial fees and pay for a sophisticated investment approach of the sort that’s usually only available to high earners.

Travels with the memberNEST stays with the member. This means every member has one NEST retirement pot that they can keep paying into whether they change employment, stop working or become self-employed.

Run for the benefit of membersNEST is run as a trust-based scheme. The Trustee has a number of legal duties, one of which is to run the scheme in the interests of its members.

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NEST is for the millions of people who want a good value workplace pension scheme that does the hard work for them. It’s been created as part of the government’s pension reforms to help employers meet their new duties. We know what employers need to do to prepare for automatic enrolment and have a range of tools and set up guides to help them set up and run their scheme.

What NEST offers

NEST has been specifically created to make it easier for employers to meet their new duties. It’s automatic enrolment ready, flexible and easy to use, with or without another scheme operating alongside it.

We’ve done in-depth research and developed ways to make automatic enrolment easier, such as our online opt-out process and preset contribution levels and enrolment types. The same level of research and expertise has gone into developing our default investment option, the NEST Retirement Date Funds.

How is the scheme regulated?

NEST is regulated by The Pensions Regulator. TPR is the UK regulator of workplace pension schemes. It works with trustees, employers, pension specialists and business advisers to protect members’ benefits and encourages high standards in running workplace pension schemes.

For more information on TPR visit www.thepensionsregulator.gov.uk

What is NEST?02

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Employers could use NEST:

as a sole scheme for all workers in an organisation

for a particular group of workers alongside an existing scheme for a different category of workers

as an entry level scheme where there is an existing scheme that has a waiting period

as a base scheme to ensure compliance with the new employer duties, using another scheme to pay in additional contributions

as a scheme that workers are enrolled into if they don’t voluntarily join an existing arrangement.

NEST makes your job easier

Setting up a workplace pension scheme can look complicated. That’s why NEST has created a range of decision trees, tools and explanatory guides to help employers navigate the technical complexities. NEST’s plain language templates make it easier for employers to let their workers know about automatic enrolment.

Once they’re up and running, employers can complete almost all of the day-to-day management of NEST through their online account. This includes enrolling members, managing opt outs, setting up contributions and making payments. Most of these functions can be automated to at least some degree to save employers time.

Employers can choose to have someone else take care of administration for them if they want to. This could be one or more people, depending on the size and requirements of the organisation. It could be someone from within their organisation or their financial adviser, accountant or payroll provider.

We make processing opt-outs easier

Under the terms of automatic enrolment workers have the right to opt out of the pension scheme within a month. We’re set up to allow workers to opt out electronically, either through their online account or using an automated telephone system, as well as using a printed opt-out notice. If a member opts out electronically we stop accepting contributions for them right away. We can also manage member opt-outs in bulk, saving employers time and hassle.

How employers can use NEST03

Employers can complete all their day-to-day management of NEST through their online account. This includes enrolling members, managing opt outs, setting up contributions and making payments.

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Making contributions

The NEST contribution schedule helps employers keep track of contributions. Details can be entered manually or uploaded from a spreadsheet, or from a payroll or HR system. We can accept weekly, fortnightly, four-weekly and monthly payment frequencies, and an employer can use multiple payment frequencies for different groups of workers.

Our contribution schedule has all the flexibility employers will need to allow for changes in a worker’s circumstances such as parental leave, career breaks and departure.

NEST can work out contributions based on qualifying earnings, or one of the alternative tiers set out by legislation. Employers can also work out their own basis for pensionable earnings and use that. As long as they meet or exceed the minimum contribution requirements, NEST can accommodate any earnings basis that an employer wants to use.

NEST also supports salary sacrifice, in which a worker gives up their right to a part of their salary in return for higher contributions from their employer.

Members can use their online accounts to pay in extra without having to go through their employers.

A single contributions schedule makes it easy to keep track of contributions. Details can be entered manually, or uploaded from a compatible software package.

Get ready for automatic enrolmentBefore they’re ready to meet their new duties, employers will need to know what they’re legally required to do, when they have to do it and how it’s going to affect their organisation. We can’t do all of this for employers but we can help by making the steps clear and providing information.The important steps are summarised below and we provide more detailed advice in our booklet Key steps to meeting your duties with NEST. Get your plans in place Employers will need to think about what needs to change in their organisation and how they want to

set up their chosen scheme. Get your organisation ready Before their staging date arrives, employers should be ready to enrol their workers on time, in line

with their legal duties. Assess and notify your workers Employers need to let their workers know their rights. As different workers have different rights,

employers should make sure they know who they need to enrol and pay contributions for. Enrol your workers When the time comes, employers can enrol their workers using their online account. Manage contributions and opt outs When they’re up and running, employers need to start sending in contributions and manage any

workers who opt out of the scheme.

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NEST is focused on the majority

NEST has been set up to provide a workplace pension scheme that’s suitable for the mainstream of workers in the UK. To keep us focused on this target group the legislation put a number of limits on how NEST works.

For instance, NEST can’t usually accept transfers from other pension schemes. We can do this in certain limited circumstances, for example as a result of a pension sharing order that comes out of a divorce or end of a civil partnership.

Also, there’s currently a cap on how much can be paid into a member’s NEST retirement pot each year. The level has been set at £4,400 for the 2012/13 tax year.

Even considering this limit there’s plenty of scope for employers to pay in extra as a way to reward their workers. 80 per cent of people in work earn £35,000 a year or less. Minimum contributions for earners at the top of that group are about £2,350 a year. This leaves plenty of scope for members and their employers to do more.

Tax relief

NEST claims tax relief on members’ contributions and adds it to their retirement pots. The basic rate of tax relief is 20 per cent. This means that if a member is entitled to tax relief they’ll get an extra 20p for every 80p they contribute.

State Second Pension

NEST is not contracted out of the additional State Pension, commonly known as the State Second Pension. This means that a member’s NEST retirement pot is separate from any basic State Pension and additional State Pension paid by the State.

You can find further information on this at www.direct.gov.uk

Section 03 • How employers can use NEST

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Investing contributions

A member’s money will be automatically invested in a NEST Retirement Date Fund that matches the greater of age 65 or their current State Pension age. If they’re over this age when they join NEST, their pot will be invested in the NEST Pre-retirement Fund.

After enrolment they can change this at any time. If they change their preferred retirement date we’ll automatically move their retirement pot into the appropriate Retirement Date Fund. They can also choose to switch their pot to one of NEST’s other fund choices.

Stopping contributions

NEST members can stop their contributions by telling their employer or logging in to their online account and letting us know directly.

Their retirement pot will remain invested in the fund they’ve been contributing to. A member can still manage their account including changing their fund choice and retirement age. We’ll keep looking after their pot to make sure that it’s ready for them when they want to take their money out. They can start making contributions again any time they want. A member will always be welcome to save more with NEST.

Changing jobs

A member who stops working for their employer will continue to be a member of NEST and can continue to pay contributions into their pot if they wish.

If a member’s new employer uses NEST then both the member and the new employer can pay into the member’s existing retirement pot. There’s no need to keep track of lots of different pots if they move between employers that use NEST.

How NEST works for members04

An online account is quicker than keeping in touch by post and helps us keep our costs low for all our members. It’s also good for the environment. Therefore we encourage members to sign up online.

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Taking money out of NEST

Members can take their money out of NEST at any age after reaching 55 and before turning 75. Depending on how much is in their retirement pot they may take their pot as a lump sum, use it to get a retirement income or a combination of both. The choices they have will depend mainly on their age and how much is in their pot.

At NEST we tell our members what their options are so employers don’t have to spend time helping workers understand their options.

We’ll write to members at least six months before we expect them to take their money out of NEST to:

show them their available retirement options

set out the process they need to follow

give them tools and information to help them make a retirement decision.

Retirement decisions can be complicated so we’ve set up a Retirement Panel of leading providers to offer a range of retirement income products. Members can use the panel to find a product that suits them or they can shop around for a retirement income using the open market option. Providers on the panel are currently Canada Life, Just Retirement, Legal & General, Partnership and Reliance Mutual.

Set up your online account at www.nestpensions.org.uk

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How NEST’s charges workNEST is completely free for employers – there are no charges to set up the scheme and no ongoing administration charge.

Members pay a combination charge made up of two elements:

an annual management charge (AMC) of 0.3 per cent on the total value of a member’s fund each year, calculated on a daily basis. The AMC is taken out of each NEST member’s investment fund and reflected in the daily unit price.

a contribution charge of 1.8 per cent on each new contribution into a member’s retirement pot. So if a contribution of £100 is made into a member’s pot £1.80 is deducted and £98.20 is invested.

Over time an AMC usually has a bigger impact than a contribution charge on the amount of charges paid. That’s why we’ve worked to keep our AMC low.

An AMC is taken on the whole of a member’s fund each year. This means that as the fund grows in size, so does the amount taken by the AMC.

The contribution charge only applies to new money paid into a member’s pot. Because of this, those who are not making contributions into their pot will not pay the contribution charge.

NEST Corporation analysis shows that NEST’s charge of 0.3 per cent AMC combined with a small contribution charge of 1.8 per cent is broadly similar to a 0.5 per cent AMC. This is a charge level which is normally only enjoyed by those in large workplace schemes as illustrated in Figure 1 over the page.

Set up your online account at www.nestpensions.org.uk

Charges05

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Percentage reduction in pot due to the charges at the charging cap for stakeholder scheme

Percentage reduction in pot due to the charges in an indicative workplace

scheme at 0.5 per cent AMC

Percentage reduction in pot due to the charges at the NEST level

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93.4

Reduction due to charges

Remaining fund

Figure 1 The effect of charges on a median earner aged 36 (the median age in NEST’s target group)

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Contributions are at the minimum employer and worker contributions with tax relief. Contributions are phased in from a total of 2 per cent to 8 per cent of the qualifying band of earnings by 2017.

Nominal pension fund growth of 5 per cent per annum is used to reflect the lower range of the Financial Services Authority (FSA) standard assumptions for pension forecasts.

The amount lost in charges was calculated as the difference between the fund size under the relevant charge compared to what the size of the fund would be under a zero charge.

The example large workplace scheme, representative of low charges in the market today, is an AMC charge assumed to be 0.5 per cent AMC.

The stakeholder charge cap is a 1.5 per cent AMC in the first 10 years of membership, falling to 1 per cent thereafter.

This figure is for illustrative purposes only. It should not be used as the basis for individual decisions as specific circumstances or variation from the underlying assumptions will lead to different results.

The illustrative saver in Figure 1 saves for 31 years from the age of 36 (the target group’s median age) in 2012, until 67 years old (State Pension age).

The illustrative saver in Figure 1 saves for 31 years from the age of 36 (the target group’s median age) in 2012, until 67 years old (State Pension age).

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Other charges

The order that established NEST requires that all members are charged on a consistent basis for the same services.

At present the Trustee has decided not to have different charges for the different funds that NEST offers.

We expect that most members will not want to switch funds. However there’s no charge for switching funds and no limit on the number of fund switches.

There are currently no plans to charge for any other services such as processing pension sharing on divorce settlements.

All charges are set at the discretion of NEST and could change in the future.

How NEST’s charges compare with the current market

NEST’s low charges support an award-winning investment approach that dynamically manages the investment risk our members take throughout their time saving with NEST.

Schemes that combine a similarly sophisticated approach with low charges have historically only been available to higher earners or members of large workplace pension schemes. Schemes with similarly managed approaches are generally only available to workers with significantly higher charges, if at all.

15Section 05 • Charges

Figure 2 shows that our charges are broadly equivalent to a 0.5 per cent AMC. Many types of saver would be slightly better off with NEST’s charge level than they would be with a 0.5 per cent AMC, although some savers who are closer to retirement may have marginally worse outcomes.

Stakeholder

1.0% AMC

0.5% AMC

NEST

1.8%

1.6%

1.4%

1.2%

1.0%

0.8%

0.4%

0.2%

0.0%5 10 15 20

Years to retirementJoins at older age Joins at younger age25 30 35 40

0.6%

Reduction in yield – Contributions not inflated

NOTE: NEST aims to eventually have no contribution charge at all, only an AMC of 0.3 per cent. This would improve NEST’s RiY even further.

Figure 2 The effect of NEST charges compared to the standard stakeholder pension cap and pension plans with AMCs of 1 per cent and 0.5 per cent

Years 5 10 15 20 25 30 35 40

NEST RiY 1.02% 0.66% 0.54% 0.48% 0.44% 0.42% 0.40% 0.39%

The Financial Services Authority basis for calculating final benefits

£50 per month, paid throughout the term

Average investment growth of 7 per cent per year

1.8 per cent contribution charge throughout the term.

This graph is based on the following assumptions:

The effect of NEST’s charges on future savings

One way of showing how charges affect future savings is through reduction in yield (RiY).

RiY measures the amount of return that is given up through charges as a percentage of the return from the same product with no charges. It is a useful way of comparing the charges of different financial products.

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We’ve conducted extensive research into the needs of new savers, including:

their future needs

their attitudes to risk and loss

their experience of saving

the need for clear communications.

Based on our research we’ve created an innovative investment approach designed to meet their needs.

We’ve also paid careful attention to guidance from the FSA, the Department for Work and Pensions and The Pensions Regulator on creating default funds for automatic enrolment schemes. Employers concerned about regulatory scrutiny can be confident that NEST’s investment approach is best practice.

NEST Retirement Date Funds Members’ money is invested in a fund that pools together the money of lots of savers. This means that even with only a small amount to invest an individual can spread their money across a range of investments.

At the heart of our investment approach are our target date funds, known as NEST Retirement Date Funds. We’ll provide a NEST Retirement Date Fund for every year that we think members are likely to take their money out. For example, if a member plans to take their money out in 2058 we’ll invest their retirement pot in the NEST 2058 Retirement Fund.

Unlike traditional pension schemes, NEST Retirement Date Funds combine active asset allocation with a dynamic approach to lifestyling. We dynamically manage the asset allocation to react to changing market and economic conditions.

Investment approach06

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How NEST Retirement Date Funds work

NEST Retirement Date Funds use three phases of investment, based on the amount of time until a member’s planned retirement date.

Growth phase

The Growth phase is the engine room of the NEST Retirement Date Funds approach. This is where we concentrate on making members’ retirement pots grow. It targets growth of 3 per cent above inflation after all charges. It’s the longest phase in our lifecycle – members could spend up to 30 years in the growth phase.

Consolidation phase

The Consolidation phase starts around 10 years before retirement. Here we gradually move members’ pots into assets that broadly reflect the way we expect they will want to take their money out of NEST. We still expect to grow a member’s pot by more than inflation but in this phase our main goal is to secure the member’s retirement income.

Foundation Phase

During our research younger potential members told us that they would react very negatively to falls in the value of their savings. For this reason members who join in their 20s will typically spend up to five years in the Foundation phase. In this phase we concentrate on steadily growing the balance rather than exposing our members to unnecessary risk. This lower-volatility approach still aims to at least match inflation.still aims to at least match inflation.

Set up your online account at www.nestpensions.org.uk

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Fund choices

NEST Retirement Date Funds are designed to be the best choice for most members. However at NEST we understand that workers will have different needs that can’t all be met with a single offering. Employers will recognise the importance of making sure none of the workers feel excluded so NEST offers a range of carefully selected funds to cater for a diverse workforce.

NEST Ethical Fund

This fund is designed for members who are concerned about the impact that the organisations they invest in have on the environment and on society.

NEST Sharia Fund

NEST Sharia Fund is designed for members who want an investment approach based on Islamic law.

NEST Lower Growth Fund

This fund is designed for members who are very cautious while investing so their retirement pot will be exposed to less investment risk. In the long term, however, it will probably grow less than other fund choices and may not keep pace with inflation.

NEST Higher Risk Fund

NEST Higher Risk Fund is designed for members who are prepared to take more investment risk to try and make their retirement pot grow more.

NEST Pre-retirement Fund

The NEST Pre-retirement Fund is an option for members who start saving with NEST when they are within a few years of their NEST retirement date. It is designed for members who plan to buy a retirement income with some or all of their pot rather than take it all as a cash lump sum.

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Trustee body

NEST Corporation is the trustee body responsible for running NEST. It is a non-departmental public body that operates at arm’s length from government and is accountable to Parliament through the Department for Work and Pensions.

NEST Corporation has a Chair and up to 14 Trustee Members who set the strategic direction and objectives for NEST.

NEST’s Trustee Members have been selected for their broad experience, their skills and pensions industry knowledge. To view Trustee Member profiles please visit www.nestpensions.org.uk

Executive team

The executive team is responsible for the day-to-day running of NEST. You can find profiles of the executive team and read our annual reports and accounts at www.nestpensions.org.uk

Employers’ and Members’ Panels

Our panels give us the opportunity to listen to the advice of employers and members on how NEST is run.

The Employers’ Panel aims to represent the views of employers using NEST. As well as providing insight on the employer experience of NEST, it makes sure that specific employer concerns are raised at Trustee level.

The Members’ Panel represents the views of our members. It provides advice and assistance to the Trustee on key issues affecting them.

How NEST is run07

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Scheme administration

NEST’s scheme administration is delivered by Tata Consultancy Services, part of the Tata Group and a top-10 global IT services, business solutions and outsourcing company.

Fund administration

NEST’s fund administration partner is State Street Bank. State Street Bank provides fund administration services to more than 90 UK pension fund clients and administers more than 1,000 pension funds worldwide.

Fund managers

Each NEST fund is constructed from underlying pooled funds provided by top fund managers, such as UBS, State Street, BlackRock, HSBC, F&C and RLAM.

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Set up your online account at www.nestpensions.org.uk

NEST

NEST provides answers to frequently asked questions on pensions and further information about our scheme at www.nestpensions.org.uk

You can contact NEST at:

Call: 0300 303 1949 Email: enquiries@nestpensions.org.uk

Other useful contacts

Business Link is a free Government business advice and support service available online and through local advisers that provides information on pensions. www.businesslink.gov.uk

The Department for Work and Pensions is responsible for Government policy on pensions. www.dwp.gov.uk

Her Majesty’s Treasury is the Government department responsible for tax-related issues for pensions. www.hm-treasury.gov.uk

The Money Advice Service provides information on financial topics to the general public on its Money Advice Service website www.moneyadviceservice.org.uk

Directgov is a Government website that provides helpful advice on pensions. www.direct.gov.uk/en/Pensionsandretirementplanning

More information and useful contacts

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The Pensions Regulator is the UK regulator of work-based pension schemes. You can find helpful information about TPR at www.thepensionsregulator.gov.uk

You can contact TPR at:

The Pensions Regulator Napier House Trafalgar Place Brighton East Sussex BN1 4DW Call: 0870 606 3636 Email: customersupport@thepensionsregulator.gov.uk

The Pensions Advisory Service (TPAS) provides free independent advice and can help both members and beneficiaries of NEST if they are experiencing problems related to NEST or any other pension scheme. www.pensionsadvisoryservice.org.uk

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Notes

© NEST Corporation 2012. This document has been created by National Employment Savings Trust Corporation, the trustee of the National Employment Savings Trust (NEST). This is not intended to be financial or other professional advice. The information contained in this document is correct at the time of its publication.

NEST Corporation St Dunstan’s House 201-211 Borough High Street London SE1 1JA

Contact us:Call: 0300 303 1949 Email: enquiries@nestpensions.org.uk

Visit our website: www.nestpensions.org.uk

NS037 KFD 10/2012

Find out more online at www.nestpensions.org.uk