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.”