Conservative MP Harriett Baldwin has hit out at Nest for charging customers a 1.8 per cent upfront fee and is calling for a flat rate to be used instead.
Speaking at a Social Market Foundation fringe event at the Conservative conference in Manchester yesterday, Baldwin said she opposes a pension charges cap, currently under consideration by the Government.
Baldwin is parliamentary private secretary to employment minister Mark Hoban and often speaks on pensions issues for the Conservatives. Pensions minister Steve Webb is a Liberal Democrat leaving no official Conservative party pensions spokesperson.
Nest operates a dual charging structure, with members paying a 1.8 per cent contribution fee on new investments alongside a 0.3 per cent annual management charge.
The upfront charge is a temporary measure to recoup the taxpayer loans Nest has used for its set up costs.
Nest says it works out at the equivalent of a 0.5 per cent fee within 10 years but has been accused of “smoke and mirrors” by Aviva. Head of policy for pensions and investments John Lawson highlights this figure is the average a saver will pay in the 10th year, rather than the average across the first 10 years, and says it creates an unfair comparison with private sector schemes.
According to Aviva analysis, it will actually take 18 years before a Nest member who contributes £100 a month will see their annual charge drop below 0.5 per cent when calculated on a reduction in yield basis. Aviva estimates the Nest RIY over the first 10 years as 0.67 per cent.
Baldwin said: “Having an upfront charge, which you don’t find in most major markets, is something I criticise Nest for. It’s much better to have a flat charge and I still think 0.5 per cent is awfully high but I know there is a lot of administration.
”We need more competition to try and get those fees down really low. This is an industry which will see an extra £11bn flowing into its coffers so let’s hope it sparks a lot of competition and a lot of transparency around low charges.”