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Charges for Nest pension scheme could fall further

The government-run pension scheme has said it will shed costs over time.


by Michelle McGagh on Oct 31, 2012 at 11:29

Charges for Nest pension scheme could fall further

Charges imposed for membership of the government-run 'Nest' pension scheme could fall as more people joining mean the economies of scale drive charges down, the managing director of the workplace scheme has said. 

Nest has been set up by the government as part of the roll-out of auto-enrolment, which will see UK workers who are not saving into a workplace pension scheme automatically placed into one, although they will have the chance to opt out if they do not want to save.

Employers who do not currently run a workplace pension scheme will have to give employees access to one and Nest is just one contender vying for people’s pension money.

Nest, which is government run, already boasts low charges. Members will pay an annual management charge (AMC) of 0.3% of total funds in a pension to pay for the management of the money. If a person has £10,000 in their pension, the charge would be £30 a year.

Members will also pay a charge of 1.8% on new contributions made which is to pay for the cost of setting up the scheme.

At event in London yesterday Helen Dean, managing director of scheme development at Nest, was asked whether a low uptake of the Nest scheme would result in higher charges. She said that costs would not rise but fall away as more people joined.

‘We do not envisage the 1.8% charge increasing because we are confident in work we are doing and where we are heading in terms of participation rates,’ she said.

‘We would like to envisage a time where 1.8% could reduce and even fall away. We cannot say when that will happen and it would depend on a number of factors but over time we would like to see the 1.8% charge fall away and then disappear altogether.’ The annual management charge (AMC) of 0.3% would remain.

Pensions minister Steve Webb, who was also speaking at the event, said Nest’s charging structure had forced changes to charging in the market.

‘Charging levels across the market are coming own markedly. If you look at the old stakeholder pension charge cap of 1.5%, people now will say they can get a pension at a fraction of that,’ he said.

‘Nest has had a crucial role in [pension] charges.’

4 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Oct 31, 2012 at 13:56

I note there is little indication of the 'returns' the fund is to achieve - as in a % above CPI or RPI, or maybe just to match gilts

and is that after, or before the 'fees'

Considering that, at current rates it is probably not unreasonable that a person's fund will need to return £10,000 pa -- and at about (GAD!) 3% that requires their fund to reach £300,000.

So - that's 50 years (age 20 to 70 ) to accumulate £300,000 - being simplistic, and assuming the fund makes as much as is needed to retain the current value of the input £1.00

£6000 per year with 0.0% charge on fund capital, and only 1.5% charge on input to the fund.

Add on the 0.3% pa charge and the contribution needed goes up to about £6,500 pa - Yes 32.5% of a £20,000 income

And that is without factoring in new government charges, taxes etc.

because - remember the money will be in a government controlled 'Pension Fund'

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Oct 31, 2012 at 13:57

Does anyone know, Is it possible to enrol in Nest if you also have a work pension?

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steve tye

Nov 01, 2012 at 17:50

To - Anonymous 1 - just one little quibble - I can't agree the money in NEST will be government controlled. Oddly, it will be controlled by Black Rock and State Street (both American) and UBS (Swiss). Would anybody want to trust them with their life savings (or, indeed, anything else)?

So, Jonathan, in answer to your question - don't even think about it...

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Anonymous 1 needed this 'off the record'

Nov 01, 2012 at 18:05

Re. 'Controlled' - as in they say what YOU can do with the fund, and what YOU can get out of the fund and what THEY can take from you and the fund as you pay into it, as it grows, (well ages) and when you come to stop putting in, and then want to take out.

Re. 'Managed' - that will be with the declared fees and charges for doing the paperwork for you and the government, while directing what your money gets held as, and/or 'invested' in, plus any commissions, fees and charges taken-from/applie- to the investment fund for putting money into the 'investment' fund, doing the 'managing' of the 'invested' money held in the funds, and extracting the money from the funds in order to transfer the 'pension fund' into a facility from which they can 'manage' the payment of your pension and associated taxes.

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