Early NEST users face a 'raw deal'

Early adopters of the National Employment Savings Trust (NEST) are facing a poor deal due to high charges, industry experts say.

Older workers, who are unlikely to use the NEST for long before retiring, stand to lose the most from the scheme.

The charging structure for NEST, confirmed by the Government yesterday, will feature a 0.3% annual management charge (AMC) and a 2% contribution charge.

While the contribution charge is meant to be temporary to cover the setting up costs of the scheme, the Government has given no details of when it will be phased out.

Paul Macro, a senior consultant at Towers Watson, says: "In the long term, NEST should be cheaper than the pensions that individuals could arrange for themselves but early joiners who are close to retirement face the sort of charges the Government always said were unacceptable."

Macro calculates an individual enrolled in 2014, saving at default contribution rates for five years before retiring, will face charges in line with the stakeholder charge cap of 1.5%.

However, in 2006 the DWP said one of its motivations for creating Personal Accounts was because few individual personal pensions were charging below the stakeholder cap.

Graeme Leach, director of policy at the Institute of Directors, adds: "At first sight, these charges are very high, and certainly more expensive in the early years than equivalent Stakeholder pensions.

"The aspiration to deliver ongoing charges of 0.3% is fine, but it looks like early savers into the NEST scheme will suffer higher charges on their contributions compared with those who join later, thus penalising those early joiners."

However, David Trenner, technical director of specialist IFA Intelligent Pensions, says people should no be so quick to ‘rubbish' the scheme, as it is better than doing nothing.

"For those of us already past age 50, NEST may be too late, but for those in their 20's and 30's NEST will give them something meaningful because they will pay into it for many years," he says.

"NEST may well turn out to be the worst form of mass pension provision, but it will be so much better than nothing, which is what so many people are currently trying!"