Govt expects 2% Nest charge to last 20 years
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The Government has said the 2 per cent contribution charge recently announced for the National Employment Savings Trust will last “in the region of 20 years”.
Answering a question in Parliament earlier this week, pensions minister Angela Eagle said: “The period in which the loan to Nest Corporation will be repaid will ultimately depend on a variety of factors, including the final costs of Nest and the size and nature of its membership.
“We anticipate that the total loan period, including the years in which Nest borrows from Government and the subsequent repayments, will last in the region of 20 years.”
The Department for Work and Pensions announced that 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 DWP refused to reveal the set-up costs for the scheme.
Towers Watson senior consultant Paul Macro says: “Psychologically, it may be very difficult for people to accept that £2 out of every £100 they save will be siphoned off to pay back a Government loan before it is even invested.
“While it is only those close to retirement who are likely to face overall charges on the scale that Nest was set up to avoid, the general communications challenge will be much wider.
“It will not help to allay people’s suspicions that the Government said nothing about how long the contribution charge would last when the charge structure was announced and smuggled this information out when all eyes were on the Budget.”
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Readers' comments (12)
Greg Heath | 25 Mar 2010 4:43 pm
I keep expecting the investment assets to be announced as all UK Govt debt.
Tht would really bring home the huge mess this scheme is and the failure it is going to be. Crazy waste of money.
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Steve Laird | 25 Mar 2010 4:51 pm
Time to scrap the whole idea.
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Mark Shaverin | 25 Mar 2010 4:55 pm
This sounds like a bid / offer spread. Whatever next, a traditional with profits fund!
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Robin Hood | 25 Mar 2010 4:56 pm
Imagine if you could create a personal pension with a reduction in yield of 2.3% and capitalise that as up front commission (or call it a loan), wouldn't it be a great wheeze to make commission.
Our regulator wouldn't be too pleased about funding our loan over 20 years though?
I wonder what the exit clause is on the contract to set up NEST. Bet TATA shares go up in value.
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JS | 25 Mar 2010 4:57 pm
So, when good insurers with good fund and good systems already exist, our esteemed masters see fit to create a 'new' insurance company, no doubt with all jobs based offshore - perhaps where the one remaining administrator is based.
Oh! I do wonder how much of this 2% has been driven by the fact that there would have been NO nest administrator left in the pile if they had not paid this bribe.
Even if the Government wanted to keep this free from insurers, why not just use the NI collection system?
Add up 2% of 20 years contributions from millions of savers. Just how much has this cost us all to loan money to construct what will be seen as a massive, massive white elephant.
Add on the millions lost in the stakeholder fiasco with compulsion that never was.
Look at 'the cost of delay' on savings ratios that all this mucking ablut has caused.
Factor in the loss of means tested benefits that auto enrollment with our current benefits system will cause.
And they are concerned about ifas advice?
IF ANYONE FROM THE CONSERVATIVES IS OUT THERE, IF YOU DO GET IN POWER, PLEASE, PLEASE RIP THIS DOWN & START AGAIN WITH SOME BRAINS FROM WITHIN THE PENSION INDUSTRY
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Michael Fallas | 25 Mar 2010 5:01 pm
They should be prosecuted for incompetence with tax payers money.
Makes you wonder just how much of our money they have really wasted.
Seems no one takes any responsibility for their actions anymore.
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Sheriff of Nottingham | 25 Mar 2010 5:06 pm
@ Robin Hood
2.3% RIY - are you sure - its not on the entire fund every year. Still looks poor value compared to stakeholder for those who dip in and out and don't manage to build a decent fund.
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Anonymous | 25 Mar 2010 5:10 pm
But if no-one else is interested in giving you pension advice or as an investor, and you have no other means of accessing a pension, then perhaps 2% is acceptable in that context. Some rebated-out pension contracts with major pension providers are still subject to 5% bid-offer spreads and monthly charges.
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John Blackmore | 25 Mar 2010 6:12 pm
If 2% is taken on a single payment then over a 10 year term the RIY is approximately 0.3% +.22% = 0.52% This falls to 0.42% for a 20 year term
A payment made 1 year before retirement would be 2% + 0.3%
So a 2.3% RIY is the maximum and only applies to someone joining 1 year before retirement
So not sure what all the fuss is about. An average RIY of 1.4% or less for younger people is not that bad.
There are many reason not to waste money in a pension scheme but the 2% charge on each contribution is not one of them.
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Paul | 26 Mar 2010 3:26 am
Don't these people hear what comes out of their mouths? They make Morcambe & Wise sound like serious political commentators.
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