Nest still cheaper than workplace schemes, despite 2 per cent contribution charge - Pada
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The National Employment Savings Trust will be cheaper for members than large occupational schemes despite carrying a 2 per cent up front charge, according to figures from the Personal Accounts Delivery Authority.
The claim comes as Department for Work and Pensions has unveiled a combined charging structure for Nest of an annual management charge of 0.3 per cent and a ’small’ contribution charge of around 2 per cent.
Pada’s figures are contained in analysis of costing structures that projects its solution will deduct less in charges from members’ pots than large workplace schemes charging an AMC of 0.5 per cent for almost all groups of savers.
Pada says those who start saving in their twenties, thirties and forties will all see lower charges through Nest. Those with caring brakes and those switching to other schemes will also be better off. The only group worse off will be those starting a short period of saving in their sixties.
The funding charges brief published by Pada today attempts to silence critics of up front charges with a detailed critique of the effect of private sector mono-charges operating in the market today. Pada’s figures show the pension pot of a 25-year-old with a short period of contributions saving in an employer-sponsored workplace scheme with charges at the stakeholder cap losing around 57 per cent of their fund to charges. Had they been in Nest, the amount lost through charges would be around 15 per cent of fund value.
Pada says the contribution charge will be phased out once the government loan needed to set up Nest has been repaid, although gave no details of how long that would take.
Minister of state for pensions and the ageing society Angela Eagle says: “This is a fair and sensible funding package which delivers the Pensions Commission’s vision of a low cost scheme in an affordable way. It balances the needs of members, taxpayers and the interest of the broader pensions industry. Market failure for low and moderate earners means they have not had access to a suitable low cost pension scheme and have not been able to save for their retirement. NEST will put this right.”
Lawrence Churchill, Nest chair designate says: “I welcome the Government’s announcement. It demonstrates how NEST can deliver low charges to its members without putting a burden on taxpayers.”
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Readers' comments (4)
Anonymous | 16 Mar 2010 1:49 pm
And we all know that cheaper isn't usually going to last for very long or be of very good quality
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Ian Mason | 16 Mar 2010 2:00 pm
Another rip off . What about stakeholder pensions they have a lower cost structure than Nest and most of the systerms are already set up so it would just be a matter of ading compulsion. Of course it wouldnt mean employing another government quango to run it . But who cares I thought it was about helping the individual not lining yet more pckets
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How funny!! | 16 Mar 2010 2:22 pm
Of the four factors that determine how a pension grows, fund performance is arguably the biggest.
So, you gotta have a good/great fund range and consistent 1st or 2nd quartile performance with the investments chosen - o/wise you're wasting your time. So pick decent funds, managed by decent FMs!! (and most people forget that it's 'net-of-charges-performance' you're looking at - ie ARR of say 8% less AMC of 2% is by far-and-away better than 3.5% ARR less 0.3% AMC)
That's one of the reasons why stakeholder was SOOOOO crap - crap funds and crap performance. Period. 1% AMC; yeah, big deal!! Why d'ya think SIPPs took off big-time??
So, the charges mean jack, in their own right ... ...
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Alan | 16 Mar 2010 3:42 pm
Andela Eagle (who) ? , this is another way of increasing NI contributions by the back door, Can Ms eagle explain how a small company can afford a 3% pay increase for employee,s and why does she think people will suddenly start contibuting (as they did with stakeholder)and does she realise that this will also result in a false sense of security for people who might contribute, as they will surely be funding at a level way below what would realy be required to provide a sensible level of income in retirment. A fund of around £400,000 to provide £20,0000 maybe!!. honestly !! where do thes people get there eggs from?
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