Nest Pensions abandoned by 10 million workers – why are savers ditching the UK’s biggest workplace pension?

Nearly 10 million workers enrolled in Nest, the UK’s largest workplace pension scheme, are currently not saving into their pots, according to new Freedom of Information (FOI) data provided exclusively to MoneyWeek.

Of the 13.7 million members of Nest Pensions, less than four million are actively contributing to their retirement savings using the scheme. That equates to more than two thirds of workers signed up for the pension not saving into it, according to Nest’s own data, obtained by InvestEngine, an investment platform.

The FOI data also showed nearly half a million – 412,000 – members have never contributed to their Nest account, highlighting a stark gap in saving for retirement among the UK workforce.

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The findings are worrying given Nest plays a central role in the nation’s savings as the pension provider for almost half (46%) of the UK’s working population.

George Bonello, head of pensions at InvestEngine, said: “The fact that too few people are saving enough into their pensions is, by now, well recognised across the industry.

“Nonetheless, the sheer number of people who do not currently contribute and in some cases have never contributed to their pension at the country’s biggest workplace provider is troubling.”

Source: Nest, via an FOI obtained by InvestEngine

Is Nest a good pension?

Over the past decade, Nest has delivered for members some of the strongest investment performance of any UK workplace pension, achieving 12% returns last year and 8% annualised over ten years, net of its annual charge.

But the Nest FOI data suggested huge swathes of workers who were with the pension scheme are now either not saving into any workplace pension, or, more likely, are leaving a trail of abandoned small pots behind them as they move from job to job.

MoneyWeek contacted Nest for an explanation of the figures. A spokesperson said the demographic of Nest members and Nest employers mean “we often see changes throughout the year as our members cycle in and out of employment and eligibility for auto enrolment”.

Under auto-enrolment, to be eligible to make the government-set minimum contributions, you must be over 22 and earning more than £10,000 in one role. The average Nest member has a salary of £24,000 per year and many are working seasonal, contract, or shift work that can see this income fluctuate.

“Our members face the challenge of saving for the future while balancing the books today,” Nest’s spokesperson said.

The problem of small pension pots

Small pots like Nest members’ often become forgotten about or lost pensions, meaning savers lose out on money that is theirs when it comes to retirement. Even if they are eventually found, having many small pensions is usually more expensive because savers are paying multiple fees to different providers.

Additionally, several small pots grow less quickly than one bigger pot, due to the power of compounding investment growth, putting savers at risk of lower long term returns.

In April, the government unveiled reforms to create a small pensions pot consolidator to deal with the problem of small pensions. Each individual’s small pots will be brought together into one pension scheme that is certified as delivering good value to savers.

There are now 13 million pensions holding £1,000 or less, with the number increasing by around one million a year, according to government estimates. Millions of people should find it easier to track their pension savings – and could get a boost of £1,000 into their retirement nest egg – under the government plans to consolidate small workplace pension pots.

However, as well as pension pots being abandoned, the FOI data showed only a very small proportion of Nest members – 217,000, less than 2% – have increased their overall contribution rate since opening their account.

This suggested few of those using Nest as a retirement savings tool are either able to put more towards retirement saving, or are unaware of the long-term benefits of boosting their pension pot by increasing monthly contributions.

Thirteen years after the introduction of automatic enrolment (AE) in October 2012, this reflects a broader member engagement challenge for defined contribution schemes, said Bonello.

“While auto enrolment has dramatically expanded coverage, low contributions mean many savers risk inadequate retirement income,” he said.

The Nest spokesperson said the government-set minimum contributions are designed to help lower earners build a foundation for retirement: “Higher earners may wish to increase their contributions over time, but it’s important to consider how this affects day-to-day living standards and overall participation in saving,” they added.

How much is the average Nest pension?

Small average Nest pot sizes, which stand at £3,218 for women and £4,924 for men, are also a cause for concern.

Levels of savings do not appear to grow significantly with age either – for members under 29, the average pot size is £1,991. This increases only slightly to £5,239 for those aged 55-64, significantly below levels needed for a comfortable retirement.

The data also points to regional disparities. Among Nest members, average pot sizes are highest in south east England (£4,475), south west England (£4,169), and the east of England (£4,159).

Every other UK region averages below £4,000, with the lowest levels of savings in the North West (£3,470) and the West Midlands (£3,494).

While the low figures partly reflect the fact that most Nest members opened accounts after 31 March 2018, giving them less time to accumulate savings, they underline the risk that many may not be able to adequately fund their retirement.

Bonello said: “Thirteen years after the introduction of automatic enrolment in October 2012, the proliferation of multiple small pension pots should also serve as a wake-up call. While auto-enrolment is rightly celebrated for bringing millions into pension saving, it has indirectly caused greater fragmentation and a lack of active member engagement.

“This results in adverse outcomes for savers in some cases, with higher fees, weaker long-term returns, lower visibility and control, and greater administrative difficulty in planning for retirement.

“This adds to the risk that many UK workers will not be able to adequately fund their retirements, and work must continue to boost member engagement. That means making processes such as setting up regular contributions and consolidating small pots as simple as possible and ensuring that the benefits of doing so are clearly communicated.”