Many employers who set up a NEST pension scheme years ago, often as a quick way to meet auto-enrolment duties, later wonder whether they can move away from it. The short answer is yes, but the process works differently depending on whether it’s the employer or an individual employee looking to step back, and there are a few compliance traps worth knowing about first.
Can an employer cancel a NEST pension scheme?
An employer can stop using NEST, but it isn’t as simple as switching it off. According to NEST, all contributions already due have to be paid and cleared before the account can close, and any active Direct Debit mandates connected to the scheme are cancelled as part of the process.
Employers should be aware that NEST requires a minimum of 28 days’ notice before an employer can stop using the scheme.
We have found that the next step catches many employers out. To close the account, they will need to log in to their employer’s Nest Pension account, and only a primary contact or full access delegate can close the account.
If you are closing a scheme with Nest Pensions, don’t forget to log in to your NEST home page, click ‘Organisation details’, then select ‘Stop taking part in NEST’. This piece of admin is very important. If an employer doesn’t correctly inform Nest Pension that they are closing the account, Nest Pension may report the employer to the Pensions Regulator for non-payment of contributions.
Employees don’t lose their pots when this happens. Their NEST accounts stay open, they keep access to the money already contributed, and they can continue managing it themselves online.
The bigger consideration is what replaces NEST. Auto-enrolment duties don’t disappear because a scheme changes, so any employer moving away from NEST needs a new qualifying scheme in place before the old one closes and needs to keep meeting contribution obligations throughout the switch.
What happens when an individual employee opts out?
This is a separate process from an employer cancelling the whole scheme, and it’s worth being clear with staff about the difference. Per NEST’s own guidance, employees have a one-month opt-out window that starts three working days after they’re enrolled. Opt out within that window and any contributions made so far are refunded in full. Miss the window, and the employee can still stop contributing, but the money already paid in stays invested in their pot until retirement rather than being returned.
Employers should never encourage or pressure staff to opt out. The Pensions Regulator can take action against employers who do, since it undermines the purpose of auto-enrolment.
Is a NEST pension protected if something goes wrong?
A NEST pension has several safeguards, although it does not have blanket protection from the Financial Services Compensation Scheme (FSCS).
NEST is a trust-based, defined-contribution workplace pension and an authorised master trust. Members’ pension savings are held separately from their employer. Therefore, if the employer becomes insolvent, the money already held in the employee’s NEST pension pot should remain in the scheme.
NEST is authorised and supervised by the Pensions Regulator. To remain authorised, master trusts must meet standards covering financial sustainability, governance, systems, administration and plans for dealing with significant problems.
The FSCS states that it cannot protect an occupational pension scheme if the scheme itself fails. However, if a UK-regulated investment provider holding assets within a defined-contribution occupational pension scheme fails, FSCS compensation may be available. This is generally limited to £85,000 per eligible member and would depend on the provider, investment structure and circumstances.
The FSCS does not compensate members simply because their pension investments fall in value.
NEST is also not covered by the Pension Protection Fund’s usual protection. This is because the Pension Protection Fund protects eligible defined-benefit schemes, rather than defined-contribution schemes such as NEST.
In summary, NEST members benefit from its trust structure and master-trust regulatory requirements, but it would be misleading to say that the whole NEST pension pot is guaranteed or fully FSCS protected.
What should employers weigh up before making a change?
Before cancelling or switching away from NEST, it’s worth reviewing what the business actually needs from a scheme now, not what it needed when NEST was first set up. That includes contribution flexibility, member communication and support, investment fund choice, and how well a provider fits alongside other benefits like group life or income protection. Our guide to reviewing pension providers walks through exactly this process, and it’s worth reading alongside this piece if a change is genuinely on the table.
If NEST has been the right scheme historically but recent developments have raised questions, our earlier look at whether it’s time to reconsider your NEST pension scheme covers some of the specific triggers worth watching for.
Switching pension providers, or even just working out whether NEST is still the right fit, isn’t something to decide from a single article. If you’re weighing up a change, get in touch with HWWA for an initial discussion and we’ll talk it through with you.
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