UK - The expected charging structure for the National Employment Savings Trust (NEST) will be a combined charge of a 0.3% annual management charge (AMC) and an admin contribution charge of 2% that may fall away once the set-up costs of the scheme have been recovered.

The final charging levels will be decided by the NEST Corporation of trustees. However, the government said the appointment of Tata Consultancy Services (TCS) for the provision of administration services to NEST provided "sufficient certainty on the costs of running the scheme to inform the broad funding strategy, including its anticipated charge levels". (See earlier IPE article: Tata confirmed as NEST admin provider)

Angela Eagle, minister of state for pensions and the ageing society, said: "This is a fair and sensible funding package which delivers the Pensions Commission's vision of a low cost scheme in an affordable way.  It balances the needs of members, taxpayers and the interest of the broader pensions industry."

The Pensions Commission report published in 2005 recommended the introduction of a national low cost pension scheme with an AMC of around 0.3%, significantly lower than the 1.5% cap on stakeholder pensions. But scepticism from the industry, that a pension scheme could achieve such a low charge, meant it was widely expected the target figure would be closer to 0.5% AMC. (See earlier IPE articles: Pensions can be delivered at 12% cost - think-tank and Personal accounts charging structure splits industry)

Instead, the Department for Work and Pensions (DWP) said "NEST will meet the Pension Commission's ambition for a low-cost scheme with an anticipated 0.3% AMC over the longer-term". However, to meet the set-up costs an additional 2% charge will also be levied on each member contribution.

A briefing note on the charging structure, published by the Personal Accounts Delivery Authority (PADA), noted the combination charge would provide "broadly equivalent outcomes" to a large occupational scheme with a 0.5% AMC, but added the 2% contribution charge could "fall away" over time.

The note stated: "Once the costs of establishing the scheme have been met, we anticipate that the contribution element will fall away, leaving a flat AMC of around 0.3%."

While the report admitted this removal of the admin set-up charge could improve outcomes for those continuing to save and for late-joiners, " the timing and extent of any fall is uncertain and depends on costs, membership levels, contribution levels, fund growth and other factors". 

The DWP also confirmed that the government intends to provide a loan to NEST to cover the "inevitable gap between costs and revenues", so the scheme is delivered at no overall cost to the taxpayer.

Lawrence Churchill, NEST chair designate said: "I welcome the government's announcement. It demonstrates how NEST can deliver low charges to its members without putting a burden on taxpayers."

Tim Jones, chief executive of PADA, added: "This announcement enables us to deliver on the Turner Commission's commitment to provide a low-charge scheme for low-to-moderate earners, helping to ensure the successful establishment of the scheme. This charge structure secures low charges for future NEST members."

The decision on the indicative charging levels for NEST follows research into existing DC charges recently published by the DWP, which noted trust based schemes with charges based on the fund size averaged 1.23% and contribution charges had a mean of 2.08%. Meanwhile 96% of contract based DC schemes had an AMC of under 1% excluding commission, with 36% operating a basic standard AMC of between 0.4-0.6% without commission. (See earlier IPE article: UK gov't studies DC charging levels)

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