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Nest set to escape the spending axe

Pension experts say Nest looks likely to survive the Government’s comprehensive spending review despite earlier speculation that the Treasury wanted to scrap it in favour of a cheaper alternative.

Industry sources say that Nest spokespeople are accepting speaking invitations for later this year for dates after a decision about the future of the National Employment Savings Trust is likely to have been made.

In July, independent pension policy adviser Ros Altmann said that the Treasury was having second thoughts about Nest over fears that it would lose money because of the increased cost of tax relief.

This came amid widespread speculation that Nest was likely to be scrapped following the Department for Work and Pensions’ review of Nest and auto-enrolment, due to report at the end of this month.

In August, the Government held talks with providers to investigate the possibility of scrapping Nest in favour of a private sector solution which could save the Government £575m over 10 years.

But the Association of British Insurers said it is unlikely that product providers could fill the gap.

Cicero Consulting director Iain Anderson says: “The Government does not want to reinvent the wheel and have another pensions commission, therefore it is likely that Nest will get the green light, albeit with the public spending considerations in mind.”

Standard Life head of pensions policy John Lawson says: “My sense is that Nest will still be required.”

The Government will announce its decision in the comprehensive spending review on October 20.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. The reason NEST isn’t being scrapped is that, in the overall scheme of things, PADA isn’t actually costing the government much (despite several members of the board being paid obscenely large salaries for the hours they’re required to put in). In the fullness of time, that outlay will be recovered by way of the extra 2% AMC.

    Meanwhile, there’s still no news of any organisation having agreed to handle the investment side of NEST, very probably because the government is seeking to impose a stupidly low AMC and all the investment houses are telling them politely where to shove it.

    If an investment house can be found to take on NEST, that’ll mean another tier of costs and, before we know it, NEST’s AMC will be well in excess of 3%, possibly as high as 4%. What a truly great low cost auto-enrolment scheme it’s gonna be.

    Given this scenario, most employers are likely to opt for a lower cost private sector scheme and there’ll be a chaotic scramble to get them all set up before the deadline plus, of course, thanks to the RDR, a dire shortgage of IFA’s to assist.

    There may be trouble ahead………..

    As I often say, carrot is better than stick, but nobody seems to be listening.

  2. The reason NEST isn’t being scrapped is that, in the overall scheme of things, PADA isn’t actually costing the government much (despite several members of the board being paid obscenely large salaries for the hours they’re required to put in). In the fullness of time, that outlay will be recovered by way of the extra 2% AMC.

    Meanwhile, there’s still no news of any organisation having agreed to handle the investment side of NEST, very probably because the government is seeking to impose a stupidly low AMC and all the investment houses are telling them politely where to shove it.

    If an investment house can be found to take on NEST, that’ll mean another tier of costs and, before we know it, NEST’s AMC will be well in excess of 3%, possibly as high as 4%. What a truly great low cost auto-enrolment scheme it’s gonna be.

    Given this scenario, most employers are likely to opt for a lower cost private sector scheme and there’ll be a chaotic scramble to get them all set up before the deadline plus, of course, thanks to the RDR, a dire shortgage of IFA’s to assist.

    There may be trouble ahead………..

    As I often say, carrot is better than stick, but nobody seems to be listening.

  3. 2% contribution charge (i.e.98% premium allocation) and 0.3% AMC inclusive of basic investment charges is how I understood it. That equates to a 0.5-0.6% RIY for most customers, particularly those with more than 10 years to retirement. That seems pretty cheap to me.

    Where have you sourced that the charge will be 2% AMC currently going to “well in excess” of 3% with investment charges Julian?

  4. To Anonymous

    Fantastic news then Most customers will have a RIY of 0.5-0.6% based on what? ridiculsously low contributions for a vast number of people who will lose acces to advice, the key ingredient required for people to join schemes, pay sensible contributions, and understand what those contributions are likely to provide them with in income terms.

    These people are so fixated on low charges when they should be looking at fair charges.

    For the last time! people do not jopin pension schems because they think they are expensive. They do not join through lack of access to advice!

    You may note I have the balls to put my name to comments I make.

    Chris Neil

  5. Chris, I’m not sure why you’re so worked up over a post that simply points out facts. Surely you should be upset at Julian’s, which espoused woefully inaccurate information? I merely corrected him, pointing out the effective price was a fraction of what he implied. I didn’t say cheap was good.

    I work for a large organisation so would prefer my posts to not be associated with them. I’m not apologetic for that – I’m not abusing that to push controversial opinions, am I?

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