16 March 2010 – NEW LOW COST PENSION TO HELP MILLIONS SAVE FOR RETIREMENT

The Government today set out the expected charges for NEST (National Employment Savings Trust), which will give millions of people the opportunity to save to meet their aspirations for their retirement.

Minister of State for Pensions and the Ageing Society Angela Eagle 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. Market failure for low and moderate earners means they have not had access to a suitable low cost pension scheme and have not been able to save for their retirement. NEST will put this right."

NEST will meet the Pension Commission’s ambition for a low cost scheme with an anticipated 0.3 per cent annual management charge over the longer term. To meet the costs of establishing the scheme, the initial level of charges will also include a small additional charge on contributions of around 2 per cent.

This is comparable to low charges currently being paid by members of large occupational schemes, and means low-to-moderate earners will have the opportunity to enjoy a level of charges that generally only higher earners and those working for larger firms can enjoy.

Until NEST is fully established, it faces an inevitable gap between costs and revenues. The Government has announced that it will make a loan to NEST to cover those costs, ensuring it 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."

Notes to Editors

1. The independent Pensions Commission, chaired by Lord Turner, published its report "A new pension settlement for the twenty-first century: The second report of the Pensions Commission." http://www.webarchive.org.uk/pan/16806/20070717/www.pensionscommission.org.uk/www.pensionscommission.org.uk/publications/2005/annrep/main-report.pdf in 2005. Amongst its recommendations was the establishment of a National Pension Scheme and the Commission proposed a target charge level of 0.3% annual management charge.
2. As part of the Government response to the Commission’s recommendations, the Pensions Act 2008 places a new duty on employers to automatically enrol all eligible jobholders into a workplace pension arrangement. A new low-cost, simple pension scheme, the NEST (National Employment Savings Trust), will be introduced, which will ensure that all employers have access to a suitable pension scheme in order to fulfil their new duties. NEST will be legally obliged to accept all employers who wish to use it to fulfil their automatic enrolment obligation. We estimate NEST will have between 3 and 6 million members
3. The Personal Accounts Delivery Authority (PADA) has signed a contract with Tata Consultancy Services (TCS) to provide administration services to the NEST scheme. The award of this contract was announced on 2nd March 2010 following a 14 month procurement exercise. Other contracts to provide services are still being negotiated. NEST will be run by a trustee corporation who will take over the contracts when PADA winds up in July.
4. The completion of this procurement provides sufficient certainty on the costs of running the scheme to inform the broad funding strategy for the NEST scheme, including its anticipated charge levels. More detailed cost information will, however, remain commercially confidential until all the remaining procurement exercises are complete.

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