Your choice on the way contributions are taken

With effect from August 2014 you have a choice as to how you wish to participate in NEST.

You can either participate using the traditional "deduction from pay" method which has applied from the commencement of NEST through to July 2014, or you can participate via "Smarter Pensions" which operates as salary sacrifice.

From August 2014 Smarter Pensions is the default route for your participation in NEST but you can opt out of Smarter Pensions and continue to participate via the deduction from pay method if you so wish.

So what is Smarter Pensions?

  • Smarter Pensions is not another pension plan; it is an arrangement we are introducing within NEST that provides a more beneficial way of contributions being paid into your plan
  • You will not make any direct employee contributions towards your pension. Instead the Company will now pay the gross amount you would otherwise contribute, as well as its own contribution, directly into your pension pot
  • The gross amount that you would otherwise have contributed is then taken as a reduction from your gross pay

What are the benefits of Smarter Pensions?

  • As the pay shown on your payslip will have reduced, your earnings subject to National Insurance (NI) contributions will also reduce, meaning you pay less NI
  • Your earnings related payments/allowances - such as bonuses, overtime and life assurance - will not be affected and your gross pay, (before the Smarter Pensions reduction) will not change


Am I eligible for Smarter Pensions? Do I need to do anything to join?

If you are eligible for Smarter Pensions, your membership of NEST will automatically be on the Smarter Pensions route.

You will be eligible for Smarter Pensions if, once your Smarter Pensions contribution has been taken, you earn above the National Minimum Wage (NMW) and in excess of the Primary Earnings Threshold (PET) - the rate at which you start paying NI contributions. If your earnings are below these amounts in any pay period you will not be eligible to participate in Smarter Pensions and will instead, make employee pension contributions. You will therefore only participate in Smarter Pensions during those pay periods when your pay meets the eligibility criteria.

How does Smarter Pensions differ from deduction from pay?

Under the deduction from pay method the following applies:

We contribute


1% of qualifying earnings

You contribute


0.8% of qualifying earnings

The Government contributes


0.2% of qualifying earnings



2% of qualifying earnings

So, you would pay gross pension contributions into NEST of £10, you will only see a pension contribution deduction of £8 on your payslip. This is because you do not get any tax relief through payroll. HMRC pay the basic rate tax relief available (£2 in this example) directly into your pension pot so that the total amount going into your pension pot each month would be £20. If you are a higher rate or additional rate tax payer, you would need to complete a self-assessment tax form to get the additional tax relief available from HMRC.

Under Smarter Pensions you do not pay contributions, instead you receive £10 less pay. As you have not received this pay, you do not pay tax or NI contributions on your Smarter Pensions amount.

Instead the Company pays £20 into your NEST account on your behalf so the same £20 is invested, but you now pay less National Insurance. Additionally, where you are a higher or additional rate tax payer it will not be necessary to seek additional tax relief via self-assessment as Smarter Pensions gives you tax relief automatically through payroll. The following contributions therefore apply once you are enrolled into Smarter Pensions:

We contribute


1% of qualifying earnings

We also make an additional contribution for you via Smarter Pensions (equal to what your gross contribution would have been)


1% of qualifying earnings



2% of qualifying earnings

Opting out of Smarter Pensions

If you wish to remain in the NEST scheme but only want to do so via the deduction from pay method than you can choose to opt out of Smarter Pensions.

To do so you will need to complete the Smarter Pensions Opt Out Form below.

You will need to complete this form promptly if you wish to ensure that no Smarter Pensions reduction is made from your pay. However, if you don’t opt out initially, you can review your participation on an annual basis or in special circumstances. Opting out will mean you will then pay your pension contributions via the deduction from pay method and you will not benefit from any potential increases in your net pay as a result of the NI savings.

Additional Voluntary Contributions (‘AVCs’)

If you want to pay AVCs over and above the standard contributions into NEST you can but you will have to arrange to make these payments direct with NEST – you are not able to make such payments through payroll.

As such payments will not be made through payroll we cannot operate Smarter Pensions in respect of any AVCs into NEST.


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File Size Uploaded Link
pdfNEST Smarter Pensions Opt Out form 47.05KB 8th May 2014 Download