CBI director general John Cridland says Nest’s charges are too high and has urged the Government to extend Nest’s loan repayment period to bring the costs to members down.
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 on members.
The contribution levy will remain until the Government loan has been repaid, which is expected to take between 20 and 26 years. The Government estimates the loan will be £904m although the CBI estimates it will be £700m.
In a speech at the Towers Watson dinner in London last week, Cridland said the Department for Work and Pensions needs to push the Treasury to extend the repayment period. He says Nest’s charges would have to be lowered “to justify its existence” because private providers are already delivering definedcontribution schemes to the private sector with annual fees of between 0.4 and 0.6 per cent.
He says: “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.
“To justify its existence and to recover the Turner ambition, Nest has to be cheaper. To do this, Nest and the DWP needs to win a battle with the Treasury.
“The Treasury is insisting the £700m loan it made to Nest be repaid quickly and it is this that has driven the design of the charge, based on the fact it is viewed as spending in the national accounts. But it is a loan on the balance sheet and should be treated as such.”
Speaking to Money Marketing, Nest chief executive Tim Jones says Nest’s charges work out at 0.48 per cent a year over the long term.
He says: “The political ask was to deliver the scheme at overall charges of below 0.5 per cent. The solution we have delivered comes in slightly below that – around 0.48 per cent – and accelerates cashflow. I am sure there are people who think that is expensive but others say Nest should not be subsidised at all. The Government had to strike a balance.”
AWD Chase de Vere head of communications Patrick Connolly says: “I think annual charges of under 0.5 per cent are very competitive and they sit well with the fairly limited range of funds that will be available when the scheme launches.”