Advisers and providers split over Nest charges
Share
Helen Pow gets industry reaction to 2% charge on contributions
Nick Bamford: ‘There must be some - one in Government or oppo sition who can see that this whole thing is fundamentally flawed’
Advisers have attacked the national employment saving trust charges but product providers have welcomed the news.
Nest will charge 2 per cent on all contributions as well as an annual management fee of 0.3 per cent until the costs of setting up the scheme have been covered. The Department for Work and Pensions will not reveal the set-up costs or estimate how long they will take to pay off.
Informed Choice chief executive Nick Bamford warns against trying to compare Nest with other schemes.
He says: “I cannot see how illustrations could be generated if we do not know how long the 2 per cent charge will be applied.
“If you try to compare Nest with other schemes you are likely to mislead people. There must be someone in Government or opposition who can see that this whole thing is fundamentally flawed.
“Someone paying £100 per month for 20 years into Nest ends up with an almost identical fund value as they would from a competitive stakeholder plan. Leaving aside means-testing, would it not have been easier to make stakeholder plans compulsory?”
Derbyshire Booth Financial Management director Greg Heath says: “It is like giving Nest a blank cheque. The financial services industry has been heavily criticised for overcharging clients but Nest is doing exactly the same.
“I understand they have to cover costs but they cannot give themselves an open mandate in terms of how long it runs for. It could be anything from £1m to £100m, it could be £500m, we do not know. Nest is targeted at low to middle-earners. Is it right they are disproportionately charged?”
But providers believe that the dual charge is fair.
Aegon head of business regulation Steve Cameron says: “A combination charge is the best way to reduce the timing mismatch between income from fees and costs incurred while also being fair to members.”
Steve Cameron: ‘A combination charge is the best way to reduce the timing mismatch between income from fees and costs’
Scottish Widows head of corporate pensions John Taylor says: “The Government has done a good job in striking a balance between good value and financial sustainability.
“Following a decade of mono-charge structures being endorsed, we now have recognition that multi-charge arrangements can be suitable.
“This could be a seminal moment in the ongoing development of defined-contribution schemes, although we certainly would not like to see a return to some of the opaque charging structures of the past.”
Standard Life head of pensions policy John Lawson says: “The dual charge puts paid to FSA hopes that they can compare other scheme charges with Nest via an RU64-style rule.
“Short stayers will get a better deal from single charge schemes but, from a commercial point of view, Nest will be able to recoup its initial capital expenditure more quickly.”
Have your say - here is a selection of adviser comments about the Nest charges on the Money Marketing website. Join the debate at www. moneymarketing.co.uk
If an insurance company or bank tried to do this they would have the world and his dog attacking them from inside the Government. Obviously, it is all perfectly fair if you control the regulator. What an awful deal. Pension savings are vital for the future but not organised like this.
John Lacy
The only way in which the Government will be able to sell these pensions is by employing a load of commission-hungry salesmen to go out cold-calling.
Michael brayne
What about clear and transparent charges? How will the reduction in yield be worked out if you do not know how long the 2 per cent charge is being applied for? Once again, it is a shambles from the word go. Perhaps the Government will be providing advice, too.
Graham Carver
I struggle to understand the logic in this. The only people worse than insurers at doing anything is the Government. Why would we possibly want to run another state pension scheme?
The amount of time and money wasted on this is truly disgraceful. I could not care less about any impact on the adviser or provider community of Nest ’muscling in on their territory’ but I am outraged at the centralising of the scheme into the Government and civil service.
Steven Martin
Am I missing something? If there are additional charges for the early joiners until the set-up charges are covered, s that not cross-subsidy? I thought that was against treating customer fairly.
Irrespective of an initial charge, how can the product be illustrated if there is no limit to the 2 per cent? I cannot see the FSA saying anything because they have the same master.
Brian Harrison
I moved offshore to get paid a fair income for providing decent advice. I was appalled by the fees some offshore companies try to charge but now they seem cheap in comparison. Keep up the good work, UK stealth tax plc.
Paul Dummett
Nest is a fundamentally flawed idea, which will fail for the same reasons stakeholder pensions failed. People who have no money cannot save. The reason why they did not save was because they had no money, not because of their concerns over product charges.
Nothing will change except that by auto-enrolling masses of the poorest people in society, the Government will have effectively deprived them of the state assistance they will need when they retire, due to the loss of means-tested benefits. This has been kicked into the long grass and is a very serious issue.
Christopher Wicks
Yet another example of how the state can destroy pension funds before they even get off the ground. If they seriously believe this charge is fair, all the previous regulation regarding transparency and value for money was a waste of time.
Nicholas Leech
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
