CBI urges Government to reform NEST charging structure

Early entrants to NEST will be worse-off for over a decade unless the next government reforms the fees structure, the Confederation for British Industry (CBI) warns.

Last month, Pensions Minister Angela Eagle revealed savers would be hit with a 2% charge on contributions for the first 20 years of the scheme - on top of a 0.3% annual management charge - in order to meet the costs of setting up the scheme.

The decision to "front load" charges received a mixed reaction from industry experts. One consultant described it as an "unmitigated tax", while another branded the charges as "outrageous".

The business lobby group says it is concerned about the structure of these fees - and warned many staff could quit the scheme should they think they were getting a raw deal.

CBI deputy director-general John Cridland says: "NEST is a key part of extending the offer of a good pension to everyone in the private sector. The scheme is meant to be low-cost and easy to understand, so that it spurs people to start saving. 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 pensions timebomb is ticking loudly, and more people must be encouraged to save."

The CBI says millions of people contributing to the scheme during this period - especially those in their 40s and 50s - would feel they are getting a raw deal and choose to opt out immediately.

It says those who do contribute will be left worse off for well over a decade when compared with saving into a pension with significantly lower average charges.

It also warned any large scale defection from NEST could mean the scheme is unable to keep the existing proposed charging structure, forcing a further increase in fees.