Case study one
When might be a good time
to start saving?
Alicia is 28. She wonders if she’s too young to start
saving in NEST.
She expects she’ll get a pension one day but feels it may be too early to think about retirement.
She can’t start getting her State Pension until her 68th birthday. This is when she expects she’ll
take her money out of NEST.
Alicia is thinking of putting off saving until a later date. But she wants to know whether it makes
any difference when she starts.
In both of the following examples Alicia contributes the same amount of
money in total. The only difference is when she starts saving.
Example one: Alicia contributes £20 every month
from age 28 up to her 68th birthday
Alicia contributes £20 every month. Her employer contributes £15 every
month and the government contributes £5 tax relief every month. This
adds up to a total contribution of £40 a month into NEST.
Alicia contributes regularly for 40 years, which means she
contributes £9,560 in total. She also gets 40 years’ worth of
contributions from her employers, which adds up to £7,170.
She gets a further £2,390 tax relief back from the government.
So the total amount contributed over 40 years to her retirement
pot is £19,120.
These contributions have plenty of time to grow. She receives about
£14,880 on top of her total contributions from investment growth.
When she takes her money out at 68, her retirement pot is expected to
have grown to more than £34,000 in today’s money. That’s over three
times the amount of money that she paid in herself.
She may be able to take at least some of this amount as tax-free cash,
and convert the rest of her pot into a retirement income that will last for
the rest of her life.
Example two: Alicia waits until she’s 48 to start contributing.
She contributes £40 every month up to her 68th birthday
Alicia contributes the same total amount as in example one. But because she waits until later to
start saving in NEST she only gets 20 years’ worth of contributions from her employers. This adds
up to £3,580. On top of this she also gets the same total amount of tax relief as in example one.
Her money has less time to grow. She only receives £3,870 on top of her total contributions from
investment growth.
Case study one
So when she takes her money out at 68, her retirement pot has grown to around £19,400 in
today’s money. That’s about £14,600 less than if she started contributing at 28 and paid in the
same amount of money.
She may be able to take at least some of this amount as tax-free cash, and convert the rest of her
pot into a retirement income that will last for the rest of her life.
Important information on these examples
We’ve used a fictional character for this case study. It’s designed to give you an idea of the effects of
working for longer and contributing more. The amount we’ve estimated for Alicia’s retirement pot isn’t
guaranteed, but it shows that what you do now could affect how much
you get when you take your money out of NEST.
In the case study, for every month Alicia contributes she gets £15 from her employer. She also
gets basic rate tax relief from the government. This comes to a quarter of her own contributions.
All contributions are shown in today’s money - this is explained at the bottom of this page. The
contributions to Alicia’s pot actually increase each year in line with inflation.
Alicia’s retirement pot is invested in a NEST Retirement Date Fund. Each year, we’ve assumed that her
pot grows in value because of the return on her NEST investments. We assume that for most of Alicia’s
time saving with NEST, the value of her pot will grow by about three per cent more than inflation until
her NEST retirement date.
Today’s money
All the amounts are worked out in today’s money, which means we’re showing what Alicia’s
retirement pot may be worth today. This is different from the amount she’ll actually get when she
takes her money out of NEST.
Below are some examples of how today’s money works.
Alicia’s NEST retirement date is 30 years away. She’s been told that on this date she could
get a retirement income of about £100 a week in today’s money.
This means her weekly retirement income would be worth about the same as £100 a week is worth
today. To put it another way it would buy her the same amount of goods that £100 buys her today.
Prices usually go up over time because of inflation. We assume that inflation will be
2.5 per cent each year. Over time, the effect of inflation builds up so, as an example,
in 30 years it will take £210 to buy what £100 buys today.
That means Alicia’s weekly retirement income could actually be £210 a week. This sounds like a lot
more than £100. But because of inflation this £210 would only buy her the same amount as £100
buys today.
That’s why we say that £210 in 30 years’ time is £100 in today’s money.
© NEST Corporation 2013. All rights reserved. This information does not constitute financial, investment or professional
advice and should not be relied upon as such. Reproduction in any form of all or any part of this guide is not allowed.
NS124 NCS1 02/2013
Is it worth paying in more?
Case study two
Jason is 35. He’s been saving £40 a month in NEST for
a few years.
His retirement pot is now worth about £3,500. He also gets a £30 contribution from his employer
each month and £10 tax relief from the government, resulting in total contributions
to his NEST pot of £80 a month.
He thinks he’ll take his money out of NEST on his 67th birthday. This is also the date when
he can start getting his State Pension.
He wonders if he should be saving more. He doesn’t have that much to spare
each month but he thinks he’ll need more than his State Pension when he
retires. So he wants to try and get as much as he can from his NEST pot.
Jason looks at NEST’s Pension Calculator. He sees that his retirement pot
could be worth about £66,600 on his 67th birthday if he continues to
contribute to his NEST pot until retirement. The calculator shows him
that he may be able to use his pot to:
take up to £16,900 as a tax-free cash lump sum
use what’s left to get a retirement income of just over £2,720 a year
to add to his State Pension. He’ll get this income for the rest of his life
But what if he contributed more? Let’s see what might happen if he
adds to his monthly contribution.
Example one: Jason pays in £50
a month (an extra £10)
This means there’s a total of £92.50 going into Jason’s retirement
pot every month, including the extra tax relief he gets from the
government. It would be higher if he worked for
an employer who matched his additional contributions.
If he gets the same rate of return on his NEST investments his
retirement pot could be worth almost £75,500 on his 67th birthday.
This is an additional £8,900. He may be able to use this total
retirement pot to:
take up to around £19,100 as a tax-free cash lump sum
use what’s left to get a retirement income for the rest of his life, giving
him around £3,090 a year to add to his State Pension
Example two: Jason pays in £70 a month (an extra £30)
This means there’s a total of £117.50 going into Jason’s retirement pot every month, including the
extra tax relief he gets from the government. It would be higher if his employer agreed to match
his additional contributions.
If he gets the same rate of return on his NEST investments his retirement pot could be worth
over £93,200 on his 67th birthday. This is an additional £26,600. He may be able to use this total
retirement pot to:
take up to about £23,300 as a tax-free cash lump sum
Case study two
use what’s left to get a retirement income for the rest of his life, giving him around £3,810
a year to add to his State Pension
Important information on these examples
We’ve used a fictional character for this case study. It’s designed to give you an idea of the effects of
working for longer and contributing more. The amount we’ve estimated for Jason’s retirement pot isn’t
guaranteed, but it shows that what you do now could affect how much
you get when you take your money out of NEST.
In the case study, Jason gets basic rate tax relief on his contributions from the government. This comes
to 25 per cent of his contributions each month. All contributions are shown in today’s money – this is
explained at the bottom of this page. The contributions to Jason’s pot actually increase each year in
line with inflation.
Jason’s retirement pot is invested in a NEST Retirement Date Fund. Each year, we’ve assumed that his
pot grows in value because of the return on his NEST investments, minus the charges
he pays to NEST. We assume this growth is between two and three per cent more than inflation for
every year until Jason’s NEST retirement date.
Today’s money
All the amounts are worked out in today’s money, which means we’re showing what Jason’s
retirement pot may be worth today. This is different from the amount he’ll actually get when
he takes his money out of NEST.
Here’s an example of how today’s money works:
Jason’s NEST retirement date is 30 years away. He’s been told that on this date she could
get a retirement income of about £100 a week in today’s money.
This means his weekly retirement income would be worth about the same as £100 a week is worth
today. To put it another way it would buy her the same amount of goods that £100 buys her today.
Prices usually go up over time because of inflation. We assume that inflation will be
2.5 per cent each year. Over time, the effect of inflation builds up so, as an example,
in 30 years it will take £210 to buy what £100 buys today.
That means Jason’s weekly retirement income could actually be £210 a week. This sounds like a lot
more than £100. But because of inflation this £210 would only buy him the same amount as £100
buys today.
That’s why we say that £210 in 30 years’ time is £100 in today’s money.
© NEST Corporation 2013. All rights reserved. This information does not constitute financial, investment or professional
advice and should not be relied upon as such. Reproduction in any form of all or any part of this guide is not allowed.
NS124 NCS2 02/2013
Case study three
When should I take my money out
of NEST?
Margaret is 55. Her State Pension age and her
NEST retirement age are both 66.
She’s been planning to retire then, start getting her State Pension and take her money out of NEST.
Her NEST retirement pot is now worth about £20,000 and she still contributes £50 per month.
Her employer also contributes £37.50 per month and she gets tax relief from the government of
£12.50 per month, which gives her total contributions of £100 per month.
She’s heard that she might be able to increase her retirement income if she
delays taking her money out of NEST.
Margaret looks at NEST’s Pension Calculator. It tells her that she might
get a retirement pot of just over £49,400 at age 66. She may be able
to use this to:
take up to about £12,300 as tax-free cash
use what’s left to get a regular income of around £2,200 a year
for the rest of her life
Margaret thinks about the amount she earns and spends today.
She’s not sure this amount of retirement income will be enough
for her, even once the mortgage is paid off. She decides to look into
working for a bit longer and continuing to contribute.
She’s interested to find out how much difference it could make
to her retirement income from NEST if she started taking it later.
Example one: Margaret takes her money out
of NEST at age 68
Margaret uses the Pension Calculator again to see what would
happen if she changed her NEST retirement age to 68. She sees
that she might get a retirement pot of over £54,800. She could
use this to take up to around £13,700 as tax-free cash, plus a
regular income of around £2,430 a year for the rest of her life.
Example two: Margaret takes her money out of NEST at age 70
Margaret uses the Pension Calculator again to see what would happen if she changed her NEST
retirement age to 70. She sees that she might get a retirement pot of just under £60,500. This is
almost £11,100 more than the value at age 66. She may be able to use this to take up to around
£15,100 as tax-free cash, plus a regular income of around £2,840 a year for the rest of her life.
Case study three
Note: Please let us know if you decide to change your NEST retirement date. This will help us
make sure we manage your retirement pot to be ready for the date when you want to take your
money out.
Important information on these examples
We’ve used a fictional character for this case study. It’s designed to give you an idea of the effects of
working for longer and contributing more. The amount we’ve estimated for Margaret’s retirement pot
isn’t guaranteed, but it shows that what you do now could affect how much
you get when you take your money out of NEST.
In the case study, Margaret gets basic rate tax relief from the government. This comes to a quarter of
her own contributions. All contributions are shown in today’s money – this is explained at the bottom
of this page. The contributions to Margaret’s pot actually increase
each year in line with inflation.
Margaret’s retirement pot is invested in a NEST Retirement Date Fund. Each year, we’ve assumed that
her pot grows in value because of the return on her NEST investments, minus the charges she pays to
NEST. We assume this growth is about 3 per cent more than inflation for every year until Margaret’s
NEST retirement age.
Today’s money
All the amounts are worked out in today’s money, which means we’re showing what Margaret’s
retirement pot may be worth today. This is different from the amount she’ll actually get when she
takes her money out of NEST.
Here’s an example:
Margaret’s NEST retirement date is 30 years away. She’s been told that on this date she could
get a retirement income of about £100 a week in today’s money.
This means her weekly retirement income would be worth about the same as £100 a week is worth
today. To put it another way it would buy her the same amount of goods that £100 buys her today.
Prices usually go up over time because of inflation. We assume that inflation will be
2.5 per cent each year. Over time, the effect of inflation builds up so, as an example,
in 30 years it will take £210 to buy what £100 buys today.
That means Margaret’s weekly retirement income could actually be £210 a week. This sounds like
a lot more than £100. But because of inflation this £210 would only buy her the same amount as
£100 buys today.
That’s why we say that £210 in 30 years’ time is £100 in today’s money.
© NEST Corporation 2013. All rights reserved. This information does not constitute financial, investment or professional
advice and should not be relied upon as such. Reproduction in any form of all or any part of this guide is not allowed.
NS124 NCS3 02/2013