On Wednesday this week the charging structure for the National Employment Savings Trust (NEST) was formally announced by by NEST Corporation. This was a little spooky for me, as I was awaiting my turn to speak at an industry conference, and in fact had just heard the Chief Executive of NEST give a presentation!

The bottom line of the announcement is that NEST charges are going to be very slightly lower than the indicative figure given earlier this year.

The confirmed charging structure is to be based on two elements:

Annual Management Charge (AMC): 0.3%

Contribution Charge: 1.8%

The AMC is likely to be the charge that most focus on. Many existing company supported pension schemes have charges well in excess of this level (a 1% AMC is still considered ‘the norm’ by many following the abortive Stakeholder pension legislation at the start of the last decade). However, most current schemes are ‘mono-charged’ (i.e. they only have the one charge - the AMC), wheres NEST will also deduct 1.8% of every contribution made before investment. So if the combined employer and employee contribution for the year was, say, £1000, then £18 would be deducted before investment, and the remaining fund value would be subject to the 0.3% annual management charge thereafter.

This does of course create a miss-match when comparing with many existing schemes. NEST is likely to be, overall, cheaper than many such schemes, but conversely more expensive for short-term savers and those near retirement (which is odd, given that this is one of the target markets for NEST to deal with).

Charges should not be the only comparator however. NEST will offer less sophistication, advice and guidance to attract clients (it’s target market is aimed at small employers and relatively low earners), so this should be taken as part of an overview review of your pension scheme.

I will be preparing a technical bulletin on this and other current NEST issues soon. I have just completed bulletins on Auto-enrolment and Scheme Certification (which will be posted on the blog in due course). If you need these sooner, please email me direct steve.herbert@jelfgroup.com

Best regards

Steve