Last November NEST announced a surprise cut to the charges it will apply. NEST said that it would initially apply a 0.3 per cent annual management charge and a contribution charge of 1.8 per cent, after the former Labour government had indicated that the contribution charge would be 2 per cent.
The new employer duties under the government’s workplace pension reforms will be introduced over a four year period from 1 October 2012. This staggered introduction of these duties is known as ‘staging’. Broadly speaking, the new duties will apply to the largest employers first with some of the smallest employers not being affected until 2016. As part of the new duties firms will be enrolled into the National Employment Savings Trust (NEST).
The former government established NEST as part of pension reforms aimed at tackling a lack of adequate pension savings among low- and middle-income UK workers. The NEST’s investment strategy will be low-risk and there may be a possibility that, after five years, savers will be able to move their money out of the NEST into other pension schemes.
The reforms include the stipulation that from 2012 employers either pay a minimum contribution of 3 per cent into the scheme or automatically enroll workers in existing pension vehicles. NEST will launch its scheme for voluntary enrolment in the second quarter of this year.
The new two-part charge by NEST will work as follows: if a member has a fund of £10,000, they will pay £30, due to the 0.3 per cent annual management charge; if that same member makes a monthly contribution of £100, including tax relief, they will pay £1.80 on the sum, due to the 1.8 per cent contribution charge.
NEST also said that in the long term, once the costs of establishing the scheme had been met, the contribution charge could fall away, leaving a flat annual management charge of 0.3 per cent. ν
A pension is a long term investment. The fund value may fluctuate and can go down. NEST schemes are regulated by the Pensions Regulator.
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