Pension savers who enrol in the National Employment Savings Trust (NEST) could be left out of pocket according to the Confederation of British Industry (CBI).
The lobby group has criticised the NEST scheme, which aims to encourage workers in the private sector to save for retirement by automatically enrolling them in a savings plan if their employer does not provide one already.
NEST will be one of the schemes available to employers as part of the Government's workplace pension reforms and is set to come into force in 2012. It will replace the Personal Accounts pension scheme but experts are warning that it won’t necessarily offer a better deal than private pension plans because of higher charges.
Savers enrolled in NEST will be charged two per cent of their contribution when they join the scheme, for initial set up costs, on top of an annual 0.3 per cent annual management charge (AMC). But according to the CBI savers in a private sector scheme will be better off, paying just 0.4 per cent annual charge.
Although calculations from the CBI show that NEST is cheaper over longer periods of time the CBI say that for the first 16 years after a pension opens, a saver in a private sector scheme is better off than their equivalent in a Nest scheme.
John Cridland, CBI Deputy Director-General, said: “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 pension’s time bomb is ticking loudly, and more people must be encouraged to save.”
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