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‘Small businesses will see Nest as the simple option’

Small businesses are likely to default to using Nest because they fear other auto-enrolment schemes may not be suitable for their employees in the long term, according to the British Chamber of Commerce.

At a Work and Pensions select committee hearing last week, BCC director general John Longworth said small firms will be attracted to the simplicity of Nest.

He said: “I suspect a lot of small businesses will head for the Nest scheme because it is the simple option. A lot of them have not done this before and they will genuinely worry that they are not giving employees the best option and employees will come back later and say ’You gave us bad advice’.”

Trades Union Congress head of campaigns and communication Nigel Stanley told MPs that employers should take advice about auto-enrolment from IFAs or employee benefit consultants but warned they should be aware of the possible costs.

He said: “I am not saying there is a massive abuse there but the history of pensions shows there are incentives that distort behaviour and can mean employees will not necessarily get the best deal.”

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Comments

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  1. JL says firms will see it as simple and NS says employers should take advice from IFAs.

    First NEST is NOT simple and second no IFA in his right mind will advise on NEST.

    Perhaps JL and NS should read the following;

    Shop Floor Worker to Mr. IFA – what is NEST?

    Mr. Shop Floor Worker:- Here’s the NEST proposition,

    You’ll be auto-enrolled, whether you want to participate or not and, even if you exercise your right to opt out, you’ll be auto-enrolled again at a later date. You can opt out again but you will be auto-enrolled again at another later date. This will go on time after time until you say sod it and join.

    Once in you won’t be able to transfer out.

    Private pensions dropped up front bid/offer charging years ago but NEST has a 2% contribution bid/offer spread charge. This is expected to last around 20 years and is designed to pay off a massive Government loan to the NEST delivery quango to cover the huge cost of setting up NEST. This 2% charge will be paid by initial members of the scheme. Future members will not be lumbered with it once the Government loan is paid off. So if you join now you will pay the cost but future joiners may get away with it.

    If you are between 50 and 55 you do not stand a cat in hells chance of building a decent size pension pot by the time you are 65 BUT you will still be auto-enrolled.

    Most of the funds available are just index trackers and we know almost nothing about those that aren’t.

    The scheme will be administered by a firm in India and, if they mess it up, there are no alternatives, because nobody else was prepared (stupid enough) to submit a tender for the job.

    The funds will be administered by a US firm of which most people over here have never heard.

    The systems through which the scheme will be operated are brand new, untried and untested.

    Your employer doesn’t want NEST and the amount he has to contribute, not to mention his administration costs, will be reflected in your future pay awards. You may even lose your job as your employer struggles with all the extra cost of NEST and needs to save money.

    At the end of the day, the amount of income you can derive from your fund will still be governed by annuity rates.

    Every penny you receive in NEST pension will result in reduced Pensions Credit from the Government. In effect you will not receive pound for pound value from your NEST pension as the combination of income tax and lost pension credit will in effect result in a marginal tax rate in excess of 40%.

    NEST is a money purchase substitute for the Earnings-Related tier of the State Pension Scheme, but you’ll receive no discounts off your NI Contributions.

    NEST was heralded originally as an ultra-cheap alternative to virtually all private sector pension plans, but the government is spending so much money on setting it all up that the whole idea of the scheme being ultra-low cost seems to be fast disappearing over the horizon, never to be seen again.

    The government designed the scheme and has steadfastly ignored all calls from the private sector to save the country millions of pounds and instead use the perfectly good Stakeholder schemes set up years ago.

    Good luck. This did not come from me and I will deny all knowledge of saying this as no IFA in the land would be mad enough to give you this advice to not join. You see according to the Government and the FSA NEST is the best pension plan in the country and will provide you with a substantial income at retirement. They know how best you should save for your retirement; except both MPs and FSA employees and other public sector workers won’t be joining NEST as they all have very nice Final Salary schemes funded by taxes paid by you the Shop Floor Worker.

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