No time limit on 2% NEST contribution charge

It is impossible to say how long the 2% charge on National Employment Savings Trust contributions will last for, the Personal Accounts Delivery Authority says.

Chief executive Tim Jones told IFAonline's sister title, Professional Pensions, the terms of the loan were still a "work in progress" and he did not know how long new contributions would face a 2% charge.

He saidys: "The secretary of state, representing the taxpayer, is the lender and the trustees of the NEST Corporation will be acting under trust law in the best interests of the members.

"They will have a conversation about this loan agreement, which we need to agree the detail of by the summer.

"That agreement will set out the terms of the deal - it is still a work in progress. It is impossible to say actually how long it will last."

He also admitted it was unknown how big the loan would actually be.

Jones explained NEST Corporation - the body which will run the scheme and replace PADA - would not borrow more than it absolutely had to.

Jones explains: "If more people come to NEST we will have to borrow more because the early year operating losses will be higher, but the revenues will build faster and therefore the loan will be repaid faster.

"If fewer people come to NEST then we will have to borrow less in the early years but it will take longer in total to pay the loan back because the revenues will build more slowly.

"The government is saying that they have an appetite to lend for as long as it takes with the charge levels they have laid out."

Jones is keen to stress contributions would only face a 2% charge once.

He says: "This is a difficult issue because you are trying to balance the legitimate interests of the taxpayer who will be lending a large amount of money to the scheme and the scheme members, where we are very focused on low charges.

"So we think this level of combination charge is about right. What we have got is the long term objective of 0.3% set out in the Turner Commission and the 2% contribution charge which accelerates cash flow in the early years of the scheme.

"Some of the commentary has suggested there is a 2.3% AMC in the early years - that is absolutely not the case. The contribution element gets charged once, not every year as the money goes into the scheme.

"It is only levied on new money going in. Compared with the stakeholder cap it is very much lower. For many NEST savers it is actually a better outcome for 0.5% because the 2% accelerates cash flow. It is absolutely not a 2.3% AMC."

Jones admitted the charging structure had to communicated with great care.

"We are going to learn from Tuesday, where we thought our PDF on the website was pretty clear but having read it again I think we can do better.

"We will do our best to explain to people that this 2% gets taken once, it is only new money that has the 2%. We have got to find a way of being very clear about that, if people thought it was 2.3% on all of the money every year with a stakeholder cap of 1.5% it would not look very attractive - but it isn't"