It’s amazing how excited these people got when they found their Nest Pension was working for them

I would like to see Nest line up with the DWP and Treasury to allow those with a Nest pot to swap it for more State Pension at state retirement age.

This seems to be an obvious way of paying pensions in return for capital Government can invest!

Government should give pensioners a good rate of exchange, reflecting the return they expect to get on our money!

This was a comment I made on a blog inspired by Nest’s Paul Todd. There are 13 m of us in Nest, more than a quarter of the working population has a Nest pension and more than half of us are in the kind of  workplace savings scheme which pay a pot not a pension.

This cannot continue. The default position for those with pots must be to convert to pensions. This is not to require all but the well off to annuitize, this was how it was till 2015 and it meant that most of us ended up in annuities we bought without much skill. In its early days, Nest said that you got an annuity at a rate it set with the provider being chosen by a spin of a roulette wheel. Thankfully that idea was soon dropped but it shows how little interest in the outcomes of pension saving.

A remarkable man, Ray Chinn, once stood up in front of a group of us and admitted that a high percentage of those who were asked what they were doing with Nest, thought they were buying state pension. Ray was Retirement Options officer for Nest.

I expect that one of the plethora of restrictions placed on Nest to ensure that it doesn’t out compete its commercial rivals is that it doesn’t do what most people think will happen, which is to pay them a pension. There is of course no mechanism for paying pensions from DC pots at the moment but I think there should be and I’ve got a mechanism to do so.

But enough of self-promotion, the bottom line is that even an extra £10 per week on the state pension is regarded as good news. At the moment £10 per week of state pension at 66 costs around £7,500 which is around what a “pension” pot is worth

That is what’s left of a £10,000 pot after you take away £2,500 as a tax free cash pot and  if all you had was  £520 pa on top of your state pension, you would not be paying tax on your income.

Of course most people with Nest Pots get more income in retirement than from the State Pension and some people would not consent to have their Nest pension paid as state pension at an agreed conversion rate, but judging by the numbers who choose not to choose and default with Nest , I reckon the majority of people still with pots at 66 (67 in a couple of years) would be happy to take 75% of their pot as state pension.

I was chatting about this with a friend over lunch. She thought that the PPF should use its obscene surplus to pay Nest pensions in exchange for Nest pots. I thought that quite neat as PPF are a well run and increasingly powerful investor who could pay more as a pension than you’d get from an annuity (I’ve done the sums and not much risk has to be taken to pay better pensions than annuities, especially if you are not for profit as PPF is).