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CBI’s warning over pension scheme

The Government’s new workplace pension scheme could deter millions of savers because of its high and complicated charges, the CBI warned today.

Businesses are worried that staff, and particularly the lower paid, will baulk at the proposed charging structure of the National Employment Savings Trust (Nest), which loads fees towards the earlier years after a pension is opened.

Nest will be introduced in 2012 as part of a plan to secure a much wider take-up of pensions among 11.7m workers in the private sector - a principle the CBI fully supports.

Employees will automatically be enrolled in a pension scheme unless they choose to opt out, and Nest will cover staff whose employers do not have their own scheme.

But this approach could be undermined when savers realise that putting money into a Nest scheme will leave them worse off for well over a decade when compared with saving into a pension with significantly lower average charges.

This may prompt many, particularly those in their 40s and 50s who will only save for a few years in Nest, to think they are getting a poor deal.

They may then immediately opt out of Nest, leaving them with lower pensions and defeating the government’s aim of boosting saving for retirement. Research by the Personal Accounts Delivery Authority showed that the public shared these concerns.

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 pensions timebomb is ticking loudly, and more people must be encouraged to save.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .