Charges for new savings scheme are too high and too complicated, it is claimed

News - Savings

Written by Ray Clancy

Complicated and too high charges connected to the National Employments Savings Trust scheme are likely to deter millions of savers, it is claimed.

The Confederation of British Industry has attacked the announcement from the Department for Work and Pensions that Nest will charge 2% on all contributions as well as an annual management fee of 0.3% until the costs of setting up the scheme have been covered which is estimates at 20 years.

According to the CBI businesses are concerned that staff, particularly the lower paid, will baulk at the proposed charging structure as it loads fees towards the earlier years.

It has worked out that for the first 16 years after a pension opens, a saver in a private sector scheme with an annual management charge of 0.4% and contributing £1,000 per annum is better off than if they were in the Nest scheme. Even an AMC of 0.6% will be more attractive than Nest for the first six years.

The 11.7 million private sector workers being targeted by the scheme are far less likely to join the company pension scheme as a result, the CBI argues. Workers, particularly those in their 40s and 50s, who will be hit by ten years of high charges close to their retirement, are more likely to opt out and receive a far lower pension in the Government’s default personal account system, it says.

Even although Nest is cheaper over the longer term there is a risk that employees will not realise this and opt out soon after being auto-enrolled. CBI deputy director general John Cridland is calling on the next government to review the structure of the fees.

‘Nest is a key part of extending the offer of a good pension to everyone in the private sector. The scheme is meant to be low cost and easy to understand, so that it spurs people to start saving. But the risk is that many staff will think they are getting a raw deal and will quit the Nest scheme,’ he warned.

‘The next government needs to revisit the structure of these fees. We must make it easier for the low paid to save by smoothing the cost, instead of front loading it. The pensions time bomb is ticking loudly and more people must be encouraged to save,’ he added.

Because of the election, the Department for Work and Pensions declined to comment, referring questions to its policy statements.