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Government Nest subsidy could reach £379m

john_lawson.

The Government could end up providing Nest with a subsidy of up to £379m if take-up volumes are below expectations, Government figures show.

A European Commission policy document, published today, confirms the UK Government loan for setting up and running the scheme does not contravene EU state aid rules.

The UK Government predicts Nest’s set-up costs to be between £105m and £117m.

However, Standard Life head of pension policy John Lawson (pictured) says the figures are “light” and expects the set-up costs to breach the £250m mark.

The Government predicts the scheme will take 20 – 27 years to break even, based on take-up of 3m to 6m people by September 2016. Its total costs, including set-up and operating costs, are expected to be between £856m and £938m over the first 10 years.

Based on these figures, the Government estimates Nest will need a loan of £904m, with an additional subsidy of £235m.

However if there are low volumes of take-up, a loan of £1.275bn could be necessary, with the scheme receiving a subsidy of £379m.

Nest will apply a contribution charge of 1.8 per cent on members in order to recover the costs of setting up and running the scheme. The Government loan will be paid back through this charge.

Lawson says: “Nest faces an uphill struggle to break even. I think it is vastly overestimating the size of its target market, which I would expect to be around the two million mark.”

Nest Corporation’s costs could reach £325m, or £46m a year, between 2010/11 and 2017/18.

Nest is expected to employ 1,231 full-time staff over the period.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. So, NEST get a big payment up front for setting the scheme up, ongoing admin costs etc.

    This is then paid by the plan holders over the next 10 years or so by an increase in charges. They do not know exactly how much they will pay in the end.

    Lucky this is all being arranged pre RDR, as this is just an enormous commission payment by another name.

  2. Me thinks the nest designed for the Golden Eagle may be inhabited by a Cuckoo.

  3. I am advising all empoyers to cut there full time staff to part time, 16 hours a week minimum wage taking them below the income freshhold to avoid a compulsary 3% tax on them in 2012.

    Nest in principle is a good idea but I think we already have something set up along the same lines, if the goverment want everybody to have a standard of living in retirment just increase NI contributions, dont hide behind the nest smoke screen, btw NEST WILL FAIL.

  4. If we are skint as a country, where will the money come from. Higher tax and National Insurance I suppose.Do governments not understand the words “cannot afford it and budget” Come on someone get a life. If this turns out like the last dabble the government got involved in “Stakeholder Pensions” there are two chances of getting it right. No chance and Dogs chance.

  5. 20-27 years to break even.
    Does that mean anyone aged around 40 should opt out?
    What if the take up is so low it never breaks even?

  6. Project Manager 31st March 2011 at 2:34 pm

    A product launched to a general public with both want and affordability in question.?

    A conflict of no new red tape on small business for three years together with the need to focus on efficiency, growth and job creation.

    NEST wil not fail. It will fail spectacularly.

    Government! if this were your own money backing this you would not risk it. Sadly it happens to be ours.

  7. Julian Stevens 2nd April 2011 at 8:33 pm

    £379m of public money to force through a scheme with which most employers who don’t already run a scheme probably don’t want foisted on them sounds just a bit crazy, not to mention chronically wasteful.

    Why not just stipulate that all employers must install a scheme of their own choosing, thereby stimulating the private sector?

    Also, why is the government doing nothing to fix all the damage done to public confidence in retirement funding as a result of 20 years of misguided government interference and meddling on the part of civil servants with their comfy gold-plated Rolls Royce final salary pensions and no understanding of the private sector?

    NEST is totally the wrong way to go about “reigniting the UK savings culture”.

  8. am I correct in thinking the E in NEST stands for Effluent?

  9. “”””Nest is expected to employ 1,231 full-time staff over the period.””””

    That’s the bit that is bloomin frightning….

    Cant ever see it coming to par….

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