Nest to charge AMC plus 2% to recoup costs
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The National Employment Savings Trust is set to charge members 2 per cent of all contributions, on top of the annual management charge, until the costs of setting up the scheme have been met.
The Department for Work and Pensions says it plans to meet the Pension Commission’s ambition for an AMC of 0.3 per cent over the long term. But the initial level of charges will include an additional charge on contributions of around 2 per cent to meet the costs of establishing the scheme.
The Government will make a loan to Nest to cover those costs. It will not reveal the size of the loan or how much setting up the scheme is likely to cost in total. It also refused to give an estimate of how long these costs will take to pay off.
The DWP says the charge is comparable to those being paid by members of large occupational schemes.
Pensions Minister 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.”
Nest chair designate Lawrence Churchill says: “I welcome the Government’s announcement. It demonstrates how Nest can deliver low charges to its members without putting a burden on taxpayers.”
Personal Accounts Delivery Authority chief executive Tim Jones (pictured) says: “This announcement enables us to deliver on the Turner Commission’s commitment to provide a low-charge scheme for low-to-moderate earners, helping to ensure the successful establishment of the scheme.
“This charge structure, which we expect to include a 0.3 per cent annual management charge, plus a charge on contributions of around 2 per cent, secures low charges for future Nest members.”
Standard Life head of pensions policy John Lawson says: “The dual charge puts paid to FSA hopes that it 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.”
TUC general secretary Brendan Barber says the charging structure strikes “exactly the right balance”.
He says: “A contribution charge provides a sensible initial income stream that will help defray start-up costs. In the longer term savers will have the stability of an industry-standard annual management charge, set at an extremely competitive level.”
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Readers' comments (48)
Anonymous | 16 Mar 2010 12:23 pm
Well obviously a brilliant scheme. Twice the cost of stakeholder for an unspecified time. What age will the break even point be? So how can we advise on it? Oh we can’t. I know, well be told to tell people to join and then in 10 years time when they are still charging the 2% initial charge, we’ll have, I don’t know how many, claims against us for wrong advice. Have we been here before?
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Anonymous | 16 Mar 2010 12:32 pm
This reminds me of the old saying " a camel is a horse designed by a committee". Once again the Govt is having to cough up to solve a problem of it's own making. Not exactly joined up thinking.
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Sean | 16 Mar 2010 12:32 pm
Why would anyone one, particularly those on low incomes who are unlikely to contribute for the full duration, join this scheme?
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John Lacy | 16 Mar 2010 12:35 pm
If an insurance company or bank tried to do this set up they would have the world and his dog attacking them from inside the government---obviously its all perfectly fair if you control the regulator.
What an awful deal!
Pension savings are vital for the future but not "organised" like this by a bunch of rapacious numpties who ought to know better.
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Anonymous | 16 Mar 2010 12:37 pm
This smells rotten and it is'nt even running yet.
Open ended charging structure.... nice one... not... what happens then when this whole thing runs over budget..??... gonna take it all from joe public...
......this will need a big fat suit to run it (at least a six figure salary plus a huge bonus and final salary benefits..)
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Anonymous | 16 Mar 2010 12:37 pm
Ah pearls of wisdom from the Govt. of unintended consequesnces...I vote that in 10 years we call these ex politicians to count...any one got a wall and a firing squad?
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Anonymous | 16 Mar 2010 12:37 pm
Ah pearls of wisdom from the Govt. of unintended consequesnces...I vote that in 10 years we call these ex politicians to count...any one got a wall and a firing squad?
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Anonymous | 16 Mar 2010 12:41 pm
Clearly I have missed the point. All of a sudden this looks cheap? Upfront charges, I thought, were the scourge of the old pensions. And for an indefinate period? Oh come on....
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Anonymous | 16 Mar 2010 12:44 pm
One of the reasons Stakeholder was such a poor performer in terms of take up by lower earners was that if you don't earn much you simply cant't save much. No amount of cheap products will make up for the fact that the limiting factor is your income. This just looks expensive.
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J | 16 Mar 2010 12:47 pm
Anon. @ 12:37 - why wait ten years?
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