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CBI: Nest charges “not cheap enough”

John Cridland

CBI director-general John Cridland has urged the Government to extend Nest’s loan repayment period, suggesting the current charging arrangements are “not cheap enough”.

The scheme, which is backed by the Government, will levy an annual management charge of 0.3 per cent and a contribution charge of 1.8 per cent.

In a speech last night, Cridland (pictured) said the DWP needed to “win a battle” with the Treasury to extend the repayment period of its £700m state loan.

He said Nest’s charges would need to be lowered to “justify its existence” because private providers are already delivering defined contribution schemes to the private sector with total annual fees of between 0.4 and 0.6 per cent.

He said: “Nest is not cheap enough. It has an effective 0.43 per cent annual charge, taking into account the annual management charge and the contribution charge, which I think it’s appropriate to do, given that the contribution charge is likely to be around 20 years, well beyond the foreseeable policy horizon.

“To justify its existence, and to recover the Turner ambition, Nest has to get cheaper. To do this, Nest and the Department for Work and Pensions needs to win a battle with the Treasury.

“The Treasury is insisting that the £700m loan it made to Nest be repaid quickly, and it’s this that has driven the design of the charge, based on the fact that it’s viewed as spending in the national accounts.

“But it’s a loan, on the balance sheet, and should be treated as such.”

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Jennifer Nicholls 6th May 2011 at 3:38 pm

    Why don’t they just scrap the whole thing. It’s going to be totally useless. They have wasted enough money on the research already. Why don’t they get the experts advice for a change. Give the providers a chance to show their knowledge and help in an area that the DWP obviously cannot cope with.

  2. Harley Davidson 6th May 2011 at 3:43 pm

    So can anybody explain what the TER is going to be, or the “Reduction in Yield” figure in other words?

  3. I see anonymous asks what the TER is going to be.Strange is it not that when I asked a representative of Aviva what the TER was on a particular fund,he impertinently replied that the TER was not a term that they were familiar with.I think what he was really saying was it was not a term they wanted their customers to find out about and you wonder why pensions get such a bad press.

  4. Sorry Lesley, I agree with your sentiment but pensions don’t get bad press because some guy or girl at Aviva hasn’t been trained on what a TER is. Joe Public looks at how much their fund has (or has not) grown this year, he / she hasn’t a scooby on what a TER is – otherwise untrained person at Aviva would know what you meant. Equity markets over ten years are relatively flat with a nightmare in between, plus the Govt / Regulator has gone out of their way to damage pension savings with review after review. Plus DB schemes have folded left, right and centre in many ways through no fault of their own – ah ha, but it is always someone’s fault (othe than the consumer), n’est pa? So blame the company / provider.
    At the end of the day, having lectured and pontificated on charges over the last couple of decades, those on the DB gravy train in Whitehall are just beginning to find out it is not as easy as they first thought to deliver a pension scheme at virtually nil cost, even with the benefit of massive tax free and interest free funding.

  5. Depends which AVIVA representative you spoke to to be fair. Call centre staff don’t need to be qualified!!

  6. BC-Thanks for the reply.However I was only allowed to speak to managers or under managers.Are you saying that they did not know what a TER is and if that is the case they should not be working there.

  7. NEST, should it happen or should the Stakeholder Pension arena be adapted to provide the required solution, why can’t we adopt a compulsory enrolment to Stakeholder (instead of NEST) unless adequate provisions already held? many clients I meet work for emplyers with inexcess of 20 emplyees all of which are unaware of any SHP.
    Why don’t HMRC review the SHP rules and assess who is providing the required solution, I’m sure the results would be alarming.

  8. Trevor Durham 6th May 2011 at 5:53 pm

    Mr Cridland has totally missed the point. As those of us out here in RealGroupPensionsLand know, providers may well be offering cheap schemes… but only to employers of a certain size paying in a certain amount per member. NEST is absolutely crucial to the auto enrolment endeavour as, for hundreds of thousands of firms, it will be the only option.

    Trevor Durham
    Chartered Financial Planner
    Certified Financial Planner

  9. I fail to see why the tax payer should subsidise a private entity.

    I don’t recall handouts when stakeholder was forced on the industry.

    These charges only go to prove what was said before stakeholder – it isn’t financially viable.

  10. Why would anyone, or provider want to get involved in a loss leader? It’s doomed! If anyone feels there is a market for them in this. They’re welcome to it.

  11. Under US law a TER must be produced

    Under UK/ FSA laws there is no requirement to produce a TER on pension schemes. It is down to UK providers whether they want to do this or not. So Aviva likely do not produce one if they do not know what it is. Scottish Life, as an example, do this but they no do not need to. Also have to agree with the comment above that not many policyholders would understand.

  12. Aviva do produce TERs, just because someone didn’t know what it was doesn’t mean they don’t produce it. I have a fund guide of theirs on my desk stating them for the PP.

    But that is besides the point, Tervor has hit the nail on the head with his comment. The segment of the market that attracts an AMC of 0.4% from a life company isn’t the target market of the NEST scheme.

  13. I am the director of a company that employs domiciliary carers. Some carers are highly productive, some less so. The extra costs of administering and paying into this nightmare will render some marginally productive carers unprofitable – so we won’t employ them. Taxing employers is the stupidest way of trying to generate pension income – it will increase the number of unemployed!

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