From The Times:
Low earners to lose chunk of pension savings from word go
Experts say that Nest could be an expensive way of saving for some and that many will be deterred by upfront charges. The flagship scheme to persuade millions of low-paid employees to save for their retirement came under fire yesterday after the Government revealed that all contributions into the new fund would be subject to a surprise 2 per cent fee. (1)
Outside experts (2) said that the National Employment Savings Trust, could be an expensive way of saving for some people and that many would be deterred by upfront charges that might actually shrink their savings pots in the early years. Between three million and six million low-to-moderate earners are expected to join Nest, the centre-piece of government plans to force all employers automatically to enrol employees in a workplace scheme of minimum standards from 2012. (3)
Nest, the default option for employers unable or unwilling to offer anything better, has been billed as a super low-cost savings scheme and the annual management charge of 0.3 per cent is low by industry standards. (4)
However, the Government has declined to pay for almost any of the start-up costs and instead is extending a loan to the scheme. To repay the loan and interest, Nest is implementing the controversial contribution commission — which will apply to all contributions, whether from employer, employee or taxman. (5)
1) Nope. Not a surprise at all, given the insurance companies' previous form in these matters.
2) For 'outside expert' read 'anybody who gives it more than a few seconds thought', like Former Tory or me.
3) Key words: 'force', 'automatically' and 'minimum standards'. Can anybody see this going horribly wrong, or at best miserably failing to achieve anything, like the much-vaunted Stakeholder Pension?
4) 0.3%? Doesn't sound like much, does it? But it eats away about ten per cent of your pension fund's investment income, year after year after year.
5) FFS, 'the government' or 'the taxman' don't pay for anything. If people who contribute get tax breaks then all things being equal, those tax breaks are going to be paid for by those who don't contribute, being mainly people with crippling mortgages; low or fluctuating incomes; and people like me who trust insurance companies even less than they trust the government. I am happy to report that I have never put a penny into a pension fund ever and never will. My opt-out form will be with HR as soon as it's available to download.
About That Closet
7 hours ago
9 comments:
Why not have an E-sipp and just buy shares direct?
your antipathy to pension saving is well-known to regulars here - but I do worry for your old age. What are you doing to provide for your golden years? (Any tips we happen to pick up in passing would be simply a bonus.)
The NEST really is going to be astonishingly inflexible and poor value:
"There will be a general prohibition on transfers to and from the NEST. This will be reviewed in 2017."
"Contributions will be paid by employees and employers and invested in a range of funds. At retirement, the accumulated fund will usually be used to provide an income for the member's lifetime. --> So presumably those funds will also levy their own charges."
"There will be an overall limit on the total amount that can be invested in the scheme each year. At present this limit has been set at £3600 pa."
All quotes from Pensions Advisory Service website.
AC, good research. So this is just 'stakeholder pension' repackaged yet again (the limit for that was £3,600 as well).
Given that this scheme is aimed predominantly at the low-paid, one wonders whether it'll comply with the FSA requirement to "Treat Customers Fairly". After all (if I read this right) as things stand, it'll just mean that the low paid have to pay money in addition to their tax liability in order to generate a miniscule income in retirement which will mean they won't qualify for means-tested minimum-income benefits.
In other words, the tax rate of the lowest paid effectively gets racheted up again - but this time the Government pays itself a commission for the tax collected. Several bitter words of abuse and disgust spring to mind but as you had to remind me before, this is a polite blog :o)
There are going to be a lot of jobs disappearing as the lowest paid get their full time work replaced by 2 or 3 part-timers on less than £5k a year each.
Speaking as someone with direct experience of FS I can safely say that it will not work, except that it is compulsory on employers -another atx and barrier to employment. In its essential structure it a price controlled group money purchase scheme, probably structured as a group personal pension.
The vast majority of people treat any form of savings as a lost spending opportunity. And if they are savers most never save enough maninly because someone else is doing it for them, they think.
The predecessor of the NEST scheme was the whole Stakeholder bollocks, which was again a price controlled suite of products. Please note that outfits like mine were already supplying pensions and ISA's and the like at less than the Stakeholder cap even before it was launched, but we do charge for our 'advice' which is not provided for in either NEST or Stakeholder. BTW stakeholder utterly failed, because of what I set out in the second para above.
Amusingly the TER on the funds we use for clients is now about 0.4% per annum. The NEST products have been quoted as having a 0.3% annual charge. This is not a TER, which is always higher.
The low earners that take this up will never accumulate a fund of sufficient size to be able to access the best annuity or other pension income deals at NRA. It will just exclude them from benefits.
Before they join this scheme someone should advise each member of all these things, but who pays for that? I'm not doing it for free and I do not see why I should pay taxes for the estate to employ somebody to do for free. Anyway they'd mostly be cluless clerks who have no idea of how not joining NEST would be the best option.
Hopefully this is the last desparate corporatist throw of this useless government. It's a shit idea and it will be shit in practice.
FT, L, oops, I forgot to mention that means testing will wipe out half of any paltry pension income arising, well spotted.
"It will just exclude them from benefits."
Presumably that's the main idea behind the scheme.
B, yup. Once you finish all the netting off and transfers to and fro, it's shifting money from low income people to the insurance companies.
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