Nest pension charges could ‘alienate savers’

The Government needs to reform its plans for a new workplace pension scheme or risk alienating savers with complicated charges, the Confederation of British Industry (CBI) has warned.

According to the lobby group, many businesses are concerned that employees, particularly those on lower incomes, will ‘baulk’ at the proposed charging structure of the National Employment Savings Trust (Nest).

Under the Government’s plans, which are set to be rolled out from 2012, employees will be automatically enrolled in the scheme unless they choose to opt out.

However, the CBI claims this approach could be ‘undermined’ when savers realise that they could be worse off by placing money into the Nest pension compared with a regular pension scheme with lower average charges.

Nest members will initially be charged 2% of their contribution when they pay money into the scheme, although on top of this there will be a 0.3% annual management charge.

‘The scheme is meant to be low-cost and easy to understand, so that it spurs people to start saving,’ commented CBI deputy director-general, John Cridland. ‘But the risk is that many staff will think they are getting a raw deal and will quit the Nest scheme.

‘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 Nest pension initiative forms part of a number of forthcoming changes to the pensions regime, which are being phased in between 2012 and 2016 (depending on the size of the firm), and which aim to ensure that low to middle income workers are saving enough for their retirement.