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Webb’s victory will only last if Nest fares well with low charges

by William Robins on Nov 05, 2012 at 13:39

Webb’s victory will only last if Nest fares well with low charges

With auto-enrolment just a month old, pensions minister Steve Webb (pictured)is tentatively declaring victory.

His grounds are that there have not been mass opt-outs by those who work for the UK’s biggest firms. However, with six years’ worth of smaller companies to come, and small pot consolidation still to resolve, Webb is hoping that Nest’s low charges will help things stay that way. Speaking about the National Employment Savings Trust (Nest) this week, Webb dubbed opt-outs the ‘dog that didn’t bark’.

‘I have essentially taken money from employees’ pay packets without permission,’ he says. ‘Thousands of people have now had money from their pay taken and put in a pension. It’s the dog that didn’t bark. Where is the indignation?’ 

Major companies using Nest

Not all the firms that have already auto-enrolled use Nest, but many do, including major companies, such as McDonalds, the BBC and BT.

These firms will not be using Nest as their only scheme, but it is suited to handling transitory labourers, waiters, shop assistants and others who would accrue small pots if they stayed with that employer long enough to be enrolled, but would burden that scheme with deferred pots when they left.

As these people move from job to job, there is a good chance they will keep contributing to a single Nest account for several years as long as Nest signs enough employers. It is planned many will also be transferred automatically, but that relies on people not being moved to a scheme with much higher charges.

The silver bullet of low charges

Webb believes low charges can be a silver bullet against the threat of mass opt-outs among small businesses. He has warned he will name and shame providers that allow auto-enrolment into ‘lousy, high-charging, old schemes’.

If all schemes race to the bottom with their charges, there is little detriment moving employees automatically from scheme to scheme. Webb also credits Nest with driving down charges across the board and continues to hold it up as a paradigm for other schemes to follow in this regard.

Investment awareness

‘The other great thing is the growing awareness of investment. Nest is a provider you can feel confident in,’ says Webb. ‘It’s not rocket science that people don’t want to lose their money. Yes, it’s a bit plodding and vanilla, but then you can start to be a bit more adventurous in the strategy.’

Is he right? Critics of Nest would say it is the overall return on investment that matters, not the level of charges. Lowering charges could mean lower returns.

3 comments so far. Why not have your say?

christopher Booth

Nov 05, 2012 at 15:31

I would not call an initial charge of 1.8% on employees contributions cheap, which is to be levied over the first 5 to 10 years in order to recoup the cost of the huge advertising campaign.

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lee rawding

Nov 05, 2012 at 16:30

I wish NEST all the best I really do but it's a bit early to be claiming any 'victories'.

As the article suggests the real potential problem areas may occur when the legions of smaller companies reach their staging dates and later still when we can begin to measure the performance of the scheme.

Of course Mr Webb will be long gone by then.

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Julian Stevens

Nov 05, 2012 at 17:04

And what about the annuity rates trap, Mr Webb? Aboiut the only good thing about NEST that I can see is that it may turn out to a bit better than nothing but, within the pensions framework as it currently stands, possibly not by much of a margin.

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