Nest Guided Retirement Fund: how it pays an income

Nest is the UK's biggest master trust, with over 13 million members and 500,000 employers signed up¹. It is a trust-based workplace pension scheme developed to suit most people, and it is open to employers and self-employed people². The Guided Retirement Fund is the part of Nest aimed at members who want to keep their pension pot invested after they stop working and take a regular income from it, rather than cashing the whole pot in or buying an annuity.

The fund works by keeping your money invested while it pays you an income, so the pot has a chance to keep growing but can also fall in value. Nest reviews the fund each July and sets a new income level for members joining the fund at that point, so the income level attached to a pot depends partly on when someone joined¹. The minimum age for taking money out of a Nest pension is 55, rising to 57 in April 2028³.

This page covers what the fund is, how money comes out of it, who can use it, what it costs, how it compares with other ways of using a Nest pot, and what can go wrong. It does not give rates or income figures: Nest's own site has today's figures.

What the Nest Guided Retirement Fund is

The Guided Retirement Fund is a way of using a Nest pension pot that keeps the money invested at retirement with a view to taking an income, which is what the pensions industry calls income drawdown⁸. Rather than converting the pot into a fixed lifetime payment, the pot stays in the market and the member draws an income from it.

That structure is the same idea as drawdown offered by other providers: the pot can continue to benefit from investment growth, and the income can be varied to suit changing needs⁹. The trade-off is that money left in a pension pot remains invested, which may give the pot a chance to grow, but it could go down in value too¹⁰.

Nest runs its retirement options alongside its main workplace scheme. Nest offers a choice of six investment funds, including an ethical fund and a Sharia fund, but the flagship Nest Retirement Date Fund is the one the vast majority of members are in¹. Nest adapts the investment strategies of its Retirement Date Funds over the years, tailoring them to members' life stage, and the Guided Retirement Fund sits at the end of that journey for members who want an income rather than a lump sum¹.

Because the fund is designed to pay an income over time rather than all at once, the amount a member can take is not fixed in advance. It depends on the size of the pot, how the investments perform and how long the income needs to last. Nest sets the income level for new joiners at its July review each year, so two members with identical pots who joined the fund in different years may be offered different income levels¹.

How money is taken out while Nest manages the pot

Under the pension freedom rules, once a member reaches the minimum pension age they can choose to cash in the pot, take out chunks of money and leave the rest invested, or buy an annuity¹¹. The Guided Retirement Fund is the version of the second option that Nest runs for its own members.

In practice, money comes out of the pot as income while the rest stays invested. The pot is not converted into a guaranteed lifetime payment, so the income is not guaranteed to continue at the same level. If investments fall, the pot can shrink faster than expected, and the income may need to be reduced or the pot may run out sooner than planned.

There is also a tax point at the point of withdrawal. A member can take 25% of their pension pot tax free in one go, meaning any more money they take out will be taxed as income⁵. Income tax is charged on any additional money taken beyond the tax-free 25%¹². Taking a large amount in a single tax year can push someone into a higher rate band, and withdrawals from flexible pensions can also trigger an emergency tax code that is corrected later.

Who can choose it and the minimum age to access your pot

The Guided Retirement Fund is available to Nest members who have reached the age at which they can take money from a pension. From the age of 55, people can choose what to do with their defined contribution pension pot¹³. You can get access to your pot once you reach 55 years old, or earlier in special circumstances¹⁴. If you are age 55 or over you will be able to access your pension pot¹⁵.

The minimum pension age to access a pension pot is usually 55 years old¹⁶, and you can generally access your money at 55¹⁷. You can take up to 25% of your pot tax-free from the age of 55, rising to 57 in 2028, and then access the rest of the money⁶. If you are 55 or over you may be able to use your pension fund now, but this could reduce your income in the long term¹⁸. If you are 55 or over, you now have access to your pension fund¹⁹.

For drawdown specifically, someone with their own pension pot has to be 55 or over, rising to 57 in 2028, to move their money into drawdown²⁰. You can access your pension pot any time from age 55, rising to 57 from 2028²¹.

There are exceptions for ill health. You cannot usually take money from your pension scheme until you are at least 55, unless you are seriously ill³. You might be able to get your pension sooner if you are retiring due to ill health²². The one exception to the minimum age is if you are seriously ill and need to access your money early¹⁷. If you are unable to work full time due to permanent physical or mental ill-health, you can apply to receive your pension²⁴. You might be able to take money out before the minimum age if you are retiring early because of ill health²⁵. If you have a workplace or private pension, you may be able to take your pension early because you are ill, known as ill-health retirement, and each scheme has different rules, so contact your provider²⁶. If you retire due to cancer, you may be able to get your personal or workplace pension early if you have or have had cancer, depending on the rules of your pension scheme or employer²⁷.

The Guided Retirement Fund or other ways to use your Nest pot

There are several ways to turn a Nest pot into retirement income, and the Guided Retirement Fund is one of them rather than the only one.

Keep the pot invested and take an income. This is what the Guided Retirement Fund does. The pot stays invested, income is paid from it, and the value can rise or fall. Investment Pathways work on a similar principle: by choosing an Investment Pathway, you can invest your pot in a fund that has been designed to broadly match your retirement plans²⁹. A drawdown product may split the pot into a savings part and a drawdown part, and you can choose different funds for each if you wish³⁰.

Buy an annuity. You can use your pension pot to buy an annuity from an insurance company²³. You can use part of your pension pot to buy an annuity that provides a short-term income, which is a fixed-term annuity rather than a lifetime one¹². An annuity converts part or all of the pot into a guaranteed income, which removes investment risk but is usually irreversible.

Take lump sums. Some providers allow a pot to be taken as a number of lump sums rather than a regular income³¹. It is possible that a current pension provider will not offer the option of accessing savings in several lump sums, so a member might want to transfer to one who can³¹.

Use an additional voluntary contribution scheme. One way to grow a retirement pot is to use an additional voluntary contribution scheme connected to an employer's pension scheme³². This is about building the pot before retirement rather than taking income from it.

How the charges work on a Nest pot

Nest charges on a different basis from most personal pensions. The contribution charge applies as money goes in; the annual charge applies to the whole pot each year.

That structure matters for anyone comparing Nest with a personal pension. A fund-based charge is based on the value of each of the funds a pension is invested in³³, so it rises as the pot grows. A contribution charge is taken at the point of paying in, so it does not grow with the pot but does reduce the amount invested from the start. Over a long period the two structures produce different outcomes, and the effect depends on how much is paid in, how long the money stays invested and how the investments perform.

Charges are not the only thing that reduces a pot. Investment performance does most of the work in either direction. The same article gives a different figure for a higher fee, and the two figures in that illustration do not agree, so it should be treated as an illustration of how fees compound rather than a prediction.

Nest's own site has today's figures for the Guided Retirement Fund, including the income levels currently being set. Charges on a Nest pot are set out in the scheme's own documents.

Moving your pot to another provider instead

A Nest pot does not have to stay at Nest. A defined contribution pension pot can usually be transferred between schemes or providers³⁴. Stakeholder pensions allow a switch to a different pension provider without penalty charges³⁵, and the same principle of portability applies across most defined contribution arrangements.

There are two main reasons someone might transfer. The first is access: it is possible that a current pension provider will not offer the option of accessing savings in several lump sums, so a member might want to transfer to one who can³¹. The second is choice of investments or retirement options elsewhere. Starting a pension with a new provider can also be done by transferring investments from another provider³⁶.

Before transferring, there are checks worth making. Check that transferring your pot will not lose you any special benefits like guaranteed annuity rates³¹. Older policies sometimes carry guarantees that are worth more than the flexibility gained by moving, and those guarantees are usually lost on transfer. Anyone who is unsure can use the free guidance services before deciding.

Risks: investment falls, running out and pension scams

The Guided Retirement Fund carries investment risk. Money left in a pension pot remains invested, which may give the pot a chance to grow, but it could go down in value too¹⁰. Because income is paid out of an invested pot, a fall in value early in retirement can reduce how long the money lasts, and there is no guarantee the income will continue at the same level.

Running out is the second risk. Drawdown income is not guaranteed for life, unlike an annuity, so the pot has to last as long as the member needs it. The amount that can be taken safely depends on the size of the pot, the income needed and how the investments perform, and a pot can be exhausted if withdrawals are too high or markets fall.

The third risk is fraud. Pension scams are fake investments designed to con you out of your money²². Do not withdraw or transfer your pension because of a cold call, visit, email or text, as it is likely a scam designed to steal your savings³⁸. If a cold caller contacts you to give you pension advice, saying they have your details and have Government backing, hang up, as this is likely to be a scam¹². National Trading Standards has identified a worrying new scam where a cold call leads to unauthorised direct debit collection³⁹.

Scheme communications should help members spot this. Governing bodies of pension schemes are expected to provide clear information on how to spot a scam in all relevant communications to members, including within standard communication materials such as the retirement wake-up pack and in annual benefit statements, and scams warning messages may also be placed on the scheme's website⁴⁰.

Where to get guidance and help

Free, impartial help is available and does not require buying anything. Pension Wise is the government-backed guidance service⁷, and MoneyHelper offers free guidance from pension experts⁴¹. MoneyHelper's retirement guidance tool asks a small number of questions and from there matches someone's unique circumstances with the guidance and tools most likely to be useful, creating a personalised action plan to follow⁴².

MoneyHelper also runs a pensions and divorce appointment service, which can guide you on your next steps, including where to find additional help and how to access regulated financial advice if needed⁴³. For anyone weighing up the Guided Retirement Fund against an annuity or lump sums, that kind of free guidance is the usual starting point.

Paid financial advice is a separate option. The Pensions Advice Allowance is available at any age, but can only be used by people who have a defined contribution pension⁴⁴. Advice costs vary, and anyone considering it should ask about fees before appointing an adviser.

If something goes wrong with a Nest pension, the first step is Nest's own complaints process. If that does not resolve it, the Financial Ombudsman Service can look at complaints about pensions and annuities, including additional contribution schemes³². The Pensions Ombudsman handles complaints about how a pension scheme has been run. Citizens Advice and Age UK both publish guidance on what you can do with your pension pot and how to prepare your finances for retirement²³.