View more on these topics

Nest to charge AMC plus 2% to recoup costs

The National Employment Savings Trust is set to charge members 2 per cent of all contributions, on top of the annual management charge, until the costs of setting up the scheme have been met.

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.”


News and expert analysis straight to your inbox

Sign up


There are 47 comments at the moment, we would love to hear your opinion too.

  1. Well obviously a brilliant scheme. Twice the cost of stakeholder for an unspecified time. What age will the break even point be? So how can we advise on it? Oh we can’t. I know, well be told to tell people to join and then in 10 years time when they are still charging the 2% initial charge, we’ll have, I don’t know how many, claims against us for wrong advice. Have we been here before?

  2. This reminds me of the old saying ” a camel is a horse designed by a committee”. Once again the Govt is having to cough up to solve a problem of it’s own making. Not exactly joined up thinking.

  3. Why would anyone one, particularly those on low incomes who are unlikely to contribute for the full duration, join this scheme?

  4. If an insurance company or bank tried to do this set up they would have the world and his dog attacking them from inside the government—obviously its all perfectly fair if you control the regulator.

    What an awful deal!

    Pension savings are vital for the future but not “organised” like this by a bunch of rapacious numpties who ought to know better.

  5. This smells rotten and it is’nt even running yet.

    Open ended charging structure…. nice one… not… what happens then when this whole thing runs over budget..??… gonna take it all from joe public…

    ……this will need a big fat suit to run it (at least a six figure salary plus a huge bonus and final salary benefits..)

  6. martin mcnamara 16th March 2010 at 12:37 pm

    Ah pearls of wisdom from the Govt. of unintended consequesnces…I vote that in 10 years we call these ex politicians to count…any one got a wall and a firing squad?

  7. Clearly I have missed the point. All of a sudden this looks cheap? Upfront charges, I thought, were the scourge of the old pensions. And for an indefinate period? Oh come on….

  8. One of the reasons Stakeholder was such a poor performer in terms of take up by lower earners was that if you don’t earn much you simply cant’t save much. No amount of cheap products will make up for the fact that the limiting factor is your income. This just looks expensive.

  9. Anon. @ 12:37 – why wait ten years?

  10. It’s a duck!!

    They thought they could pull the wool over my eyes but I can still see this cam as plain as day, it has quacked and there is no doubt that it is a duck.

    Sorry, I meant to say, “It’s a tax!!”

  11. It’s nice to see the Government finally accept that financial services don’t come for free.

  12. Morons, morons, weve got morons in charge. Wyh not just make stakeholder a mandatory contribution scheme for all thos who are going to be “trapped in the NEST”. It is likely to be much lower charged and atleast it has a cap on the duration of the higher initial charge. This so smacks of Politicians Logic. “Something must be done about the state of pensions. Here is something……. therefore we must do it!” In the name of all that’s merciful please get these idiots out of any decision making process. We are doomed Capt Manaring, doomed I tell you.

  13. Suzanne Lubenko 16th March 2010 at 1:03 pm

    Isn’t this really commission, which the FSA are trying to abolish on group pension schemes?

  14. ah the good old bid/offer spread, welcome back we’ve missed you

  15. 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………

    Hang on… this all flawed…

    If this affects the policyholders returns then surely they must be revealed up front…. An idea of the costs would give rise to some maths as to whether pay off was possible…

    How are you going to provide a quotation to joe public..

    ……and is this not unfair to the founding investors as later investors may not have to pay 2% (fat chance)

    Come HMG etc.. get a grip.. this is hardly a plan most cunning…

  16. Stuart Rathbone 16th March 2010 at 1:14 pm

    Dissembling Govt Speak

    “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.”

    So would the end to means testing by decent level of properly funded state pension through the taxation system allied to a market driven private pension system for additional provision without any state interference.

    But that would necessitate honesty from the political class.

    I.e. the words not fair and we cannot afford to keep you in the way you would like to be come accustom, apart from a state pension that keeps above the poverty line you are on your own. But anything you do save you will benefit from.

    Sadly we get the political class we pay for.

  17. The only way the government will be able the sell these pensions is to employ a load of commission hungry salesmen to go out cold calling!

  18. What about clear and transparent charges. How will the reduction in yield be worked out if you don’t know how long the 2% charge is being applied for. Sorry I know the answer the Government is always right–NOT
    Once again shambles from the word go. Perhaps the Government will be providing the advice too – after all its free —NOT

  19. All I can say is yes yes yes in agreement to every comment made above !! we pay these idiots to dream up these great ideas of how we can plug the savings gap and pension shortfalls and yet they haven’t even got the decency to tell us the voting public how much it has cost so far and what it will have cost by the time it is rolled out.
    Can one of these idiots please therefore go back and tell the rest of them locked away in that cupboard that we would really like to know and we’d like to know now not when we have to pay for it ! RDR and this rolling out at the same time !! this industry is on it’s knees and unfortunately thanks to another bunch of idiots and what they think is the right thing for joe public there will be a lot less advisors around in two years time for poor old joe public to turn to to ask the question “what should I do” and the ones that are left will need to charge poor old joe such a hefty fee in order to be able to stay in business that joe won’t be able to pay that fee and contribute into something he doesn’t know the true cost of, so will undoubtedly do nothing and on the downward spiral will continue !!! and my final comment I promise, I heard the other day that TATA (indian steel company) have won the contract to run the NEST scheme !!!!!! not sure if this is true but if so what the hell is the world coming to !!!!

  20. I really struggle to understand the logic in this. The only people worse than insurers at doing anything (maybe banks) is the government. Why would we possibly want to run another state pension scheme. There are two problems with stakeholder
    1. Lack of advice
    2. Lack of compulsion.
    NEST will not improve point one and point 2 could easily have been fixed by making stakeholder compulsory and compelling a level of contribution.
    The amount of time and money that has been wasted on this a truly disgraceful.
    I couldn’t care less about any impact on the advisor / provider community of NEST, ‘muscling in on their territory’ but am outraged at the centralising of the scheme into the government and civil service.

  21. Sounds like a splendid idea.

    I would like the government to give me a loan to run my company and then I can set up pensions for clients with a 2.3% annual charge.

    I can quite happily tell the clients “This is a fair and sensible funding package which delivers a low cost scheme in an affordable way” and it is backed by the TUC.

    Yes, I think the goverment are going to secure the nations future pension provision with this well thought out idea.

  22. Lindsay Lockett 16th March 2010 at 1:34 pm

    Well I’m glad our industry isn’t picking up the cost of this white elephant. Pass it on to the poor members whose employers haven’t had the foresight to set up their own arrangements.

    It makes a mockery of the Stakeholder charge cap, when a Government sponsored scheme can apply whatever charge it requires to cover costs but IFAs/pension companies have to jump through hoops to achieve the same.

  23. There is a simple answer place your clients in a lower charged contract until NEST reduce their charges.

  24. So, the provider (the government) is providing a loan to the “adviser” (the NEST partnership) by way of factoring, and the costs are being recovered by higher charges over the plan term.

    Isn’t this front end commission, of exactly the sort being banned under RDR?

    You couldn’t make this up.

    Perhaps the FSA, in their new role of regulating products after the horse has bolted, will stop this non compliant, expensive, mess.

  25. Am I missing something. If there are additional charges for the early joiners until the set up charges are covered is that not cross subsidy.
    I thought that was against TCF.

    Irrespective of an initial charge how can the product be illustrated if there is no limit to the 2%.

    Cant see the FSA saying anything because they have the same master.

  26. …..and just to ensure that it the real deal stitch up of all time – investors will no doubt have to buy UK Govt debt as the deferred investment option.

    You really could not make this mess up. Who but the financially niave would join this scheme with 2% upfront charge? Oh hang on; that is what nest is relying on. I bet the 2% charge is left there indefinately.

    I wonder if they will cover this in the new financial education in schools?

  27. Has anyone actually given any thought to the impact on the thousands of small businesses ( the supposed back bone of this country) the ones where most of the people the government are targeting are employed.
    These small businesses that have at this stage no idea that this juggernaught is on it’s way and it’s going to crash right through their front door !!!
    What cost to them in terms of administration of auto enrolment and for re-enrolement for those who choose (of their owm volition of course) to opt out. And what cost to the business of those who choose to stay in !! how will they feel when they find out the cost to their business of yet another idea dreamt up by what seems like some chimps at a tea party!!
    If they cannot afford the increased costs which I suspect the majority won’t, what happens then when they start to cutt staff and put more people on the dole, won’t we end up in a worse position than when we started ???

  28. I moved offshore to get paid a fair income for providing decent advice. I was apalled by some of the charges some offshore companies try to charge but now they seem cheap by comparison. Keep up the good work UKstealth tax plc.

  29. Absolute rubbish, a fiasco!
    No figures, no time scale just a 2% levy on all contributions for the foreseeable future. And how long before the 0.3% service charge is increased?
    I believe the 2% levy would stay indefinitely.

    Take the example of the QE2 bridge over the Thames, opened in 1991 with a toll to repay it’s construction and financing costs. All these have now been repaid, some years back, but the tolls continue. The rationale now being that a report, commissioned many years after the opening, stated that having a toll helped reduce the growth in traffic volumes and had benefits for local communities. And the toll money goes where exactly? Into relieving the congestion, building better infrastructure, additional capacity? Precious little sign of any of this. Just going into the black hole of the Treasury no doubt.

    Presumably a report on the 2% levy in 5/10 years time will conclude that it has not been a constraint on contributions !!!!! and that to remove it would now in any case be unfair to those who had been paying it all these years. Ergo removal would be retrospectively unfair to current contributors so it should continue.

    Advisers will then be hammered on the basis that they miss-advised their clients by saying that this levy was only temporary. Can anyone see the FSA, as presently constituted and on past performance, letting such advisers duck out of their what it will claim are their ‘responsibilities’?

    ‘Best Advice’ will probably be to steer clear of these, but the FSCS will still bill you for your contribution to any compensation fund, just as they do now.

  30. Terry Mullender. 16th March 2010 at 4:10 pm

    So we now know that low income earners will be charged 2% plus 0.30% for potentially losing their means tested state benefits. I wonder how many more thousands will now choose to opt out of NEST…

  31. Christopher Wicks 16th March 2010 at 5:22 pm

    They will be introducing capital units next!

    It is interesting that the open ended commitment to deduct 2% from contributions would totally fail the standards of TCF which we are required to adhere to.

    It is a fundamentally flawed idea which will fail for the same reasons that stakeholder pensions failed. People who have no money can’t save. The reason why they didn’t save was because they had no money – not because of their concerns over product charges! Nothing will be changed except that by auto-enrolling masses of the poorest people in society, the govt (a Labour one at that) will have effectively deprived them of the state assistance that they will need when they retire due to the loss of means tested benefits. This has been glibly kicked into the long grass but is a very serious issue.

    Chris Wicks CFP

  32. Surely there must be someone in Government or opposition who can see that this whole thing is fundamentally flawed?

    I can’t even see how illustrations could be generated if it is not even known for how long the 2% charge will be applied.

    There must be a politician somewhere who is looking at this and thinking “hang on this doesn’t make sense”

    We did some quick calculations earlier and worked out that someone paying in £100 per month for 20 years ends up with an almost identical fund value as they would get from a competitively charged stakeholder pension plan.

    Leaving aside the issues surrounding means testing of benefits wouldn’t it have been easier just to make contributions to stakeholder plans compulsory?

  33. The lunatics are indeed in charge of the asylum.

    2% front end charge for how long? Forever? Is 2% enough to cover the costs? To pay for all those employees on big salaries? Incredible stuff and these people are supposed to be intelligent..

    And they wonder why IFAs rant and rave so often!!

  34. It would need a term of over 17 yrs for somone who could otherwise access a nil initial charge 0.5% amc plan to do better with NEST.
    More importantly, assuming 10mill people join, avge salary of 12k, avge contribution 8%, the 2% charge comes to nearly £200million EACH YEAR!!! Is that all going to the NEST company? What a waste of money – you wouldnt need any of that if you used existing schemes surely and just applied compulsion!

  35. Of course, we don’t know the basis the 2% was calculated on. But assuming it was on a particular percentage take up, two things look likely as the take up is likely to be lower now this is published: the 2% will extend much longer, or the charge will have to be lifted higher to gain the return. So either way, this looks like a tax, not an investment!!

  36. I would love to be in the same wine bar somewhere in Westminster when these things are being dreamt up. AND these idiots are being paid for it and claiming it on expenses as well.

    It’s about time someone thought about solving the problem instead of trying to win votes and jutifying their existance. Of course you could ask those at the coal face, IFA’s, but apparently they are unprofessional and can not be trusted. Hmmmm.! ?

  37. This is insane. What are Labour doing? They have signed the NEST contract with TATA (the only company left in the running as others realised you can’t possibly run a scheme on 0.3% charges) with a £25m get out clause if they want to stop this progressing. It drives me nuts that this dictatorship of a Govt, which has already royally shafted this nation and our industry, seems hellbent on further destruction. All the comments here are spot on, why didn’t the Govt consult people in the industry over this for on the ground feedback? Why didn’t they just make Stakeholder a compulsory pension vehicle lined to state pensions? The infrastructure is surely already in place? So many idiots making decisions who do not know the right questions to ask or appear to give any consideration to what is already out there instead of fudging another new initiative at God knows what cost to the British public at a time when we (as a nation) don’t have any spare pennies to be so frivolous.

  38. Am I missing something? I thought entry was beign staggered because NEST could’nt cope if everyone joins on Day 1. Does this not mean the early entrants who have no control over when their employer joins will pay more in set up charges? Is this TCF?

  39. Let’s hope some of the popular press pick up this scandalous story and publish it just before the next election to show the public how incompetent this current Government is. ‘Private Business’ – front ended charges bad, ‘Government Quango’ – front ended charges good. Makes you think.

  40. 2% initial plus 0.3% amc – I make that equivalent to 0.7% amc over 10 years – still quite cheap but vulnerable to provider offers with ‘whole of market’ fund choice since the FSA seem to allow up to 0.75% extra annual cost (i.e say 1.5% amc – plenty available in this range) where substantial additional benefits are provided.

  41. Was the 2% on offer to the other parties who dropped out of the running?

  42. Maybe I am missing the point here but I have noted quite a few of you raising issues that should be picked up by the FSA.

    Isnt the NEST scheme being set up under occupational rules as opposed to personal pension rules?

    Are TATA even an FSA authorised operator / provider?

    I am sure that the quotes provided (if any) will be generic and will probably mask the up front costs.

    This whole thing smacks of a scandal waiting to happen!

  43. I’ve thoroughly enjoyed reading all of the above comments – but it’s starting to really hack me off that this will go ahead.

    Angela Eagle says it’s a “fair and sensible funding package which delivers the Pensions Commission’s vision of a low cost scheme in an affordable way.” It’s not fair, sensible, low cost or affordable. What cloud is this stupid woman on? And she’s the Pensions Minister!! Absolute donut

  44. who could have thought they could ***K up worse than stakeholder, what a cluster***** of incompetence

  45. How many millions spent on this? Only to come up with a product that would have been derided by the Government and public had it be designed by an IFA or insurance company?
    Seems like it was considered on the back of a fag packet……….

  46. huw frederickson 18th March 2010 at 11:25 am

    Folks – Calm down before our numbers are further reduced by a collective heart attack. 13 years should have been long enough to realise that our masters in Whitehall really don’t care at all whether things are thought through or fair. When the UK was recently polled, 48% of the population think that Govt spending should rise and Gordo is doing a good job. We get the Govt we deserve in a democracy. The ONLY thing to do is look at this chaos and work out how to generate cash from the mayhem in a compliant manner…given the unfolding disaster which is Nest, it surely can’t be that hard to treat your customers fairly and improve on 1970s style terms such as this. I wouldn’t be surprised if the Govt, encouraged by lack of public uproar will slide the charge up to the full fat 5% bid offer spread given time. That coupled with the cancellation of S2P in 2012 means the sack marked ‘swag’ will just swell and swell. Personally, I’d rather emigrate somewhere with a comparatively principled Govt such as Zimbabwe…

  47. Well, well, well yet another example of how the state can destroy pension funds before they’re even off the ground.
    If they seriously believe that a 2.3% initial charge is fair then all the previous regulation re transparency and value for money was a waste of time. In this day & age nobody with half a brain would buy a pension fund with a 2.3% initial charge – can’t wait for the final details to be published! surprised – not really!

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm