Paul Leatherbarrow, Liverpool
Because NE.S.T. has been shunned by the private sector the task of servicing the millions of small pension pots will be met by the Department of Works and Pensions which means they will have to borrow £1 billion from the government.
To repay the loan N.E.S.T. will levy an extra 2% charge on contributions which will be a front ended charge The need for more education on Pensions
There must be more education especially as N.E.S.T. will not provide the highest possible income from all the available options.
It must not be a case of people thinking just Because they are contributing in N.E.S.T. they are sorted
People are not aware of how much they need to save for their retirement this can only be done through taking part in a thorough Financial review
People need to realise N.E.S.T. alone will not simply be enough .
Investment strategy of N.E.S.T. All contributions will be put into passive low risk funds (younger members will not be put into higher risk funds to gain better returns) The Government has given the green light to the national employment savings trust (N.E.S.T.) open to all workers.
All employers are to be compelled to sign up their staff to a work place pension and to pay something towards this, employees will be expected to chip in, although they can opt out if want
Who will be affected? 5 – 6 million people will have the chance to save in a work place pension with a proportion of their pay. Their employer and the state will also contribute. The government believe only 20% will opt out of the scheme The Rules Employees between 22 and state retirement age eligible to join. Must earn over £7,475 per annum those who earn over 5k may also contribute (This will eliminate most part time workers)
Starting level for contributions will be 2% of pay 1% from employee and 1% from employer. From Oct 2016 the minimum contributions will rise to 3% from employee and 2% from employer And finally Oct 2017 contributions will rise to 8% with 3% from employer and 5% from employee The employee contribution will come from pay before tax, so the state will bear one fifth of the cost There will be a 0.3% charge on N.E.S.T. member’s funds under management Commencement date Starts next spring to test the N.E.S.T. systems, then bigger employees will have to comply by Oct 2012, with all employers joined by September 2016 Firms will have 13 weeks to start contributing to the pension schemes for all new employees
Many employers are apprehensive and are concerned it will be an added burden both financially and time wise. The costs of auto enrolment will be significant for very small firms At first transfers in and out is banned but will be removed by 2017 What about existing company schemes? Employers are allowed to continue their own company scheme, provided they meet minimum criteria of N.E.S.T. and contributions so long as employees can opt for N.E.S.T. if they desire How will N.E.S.T. work?
Savings will be invested centrally Will have a choice from a range of funds If no preference chosen a default fund will used The Pension will be portable with new employers allowed to contribute At retirement the accumulated fund will buy an annuity (guaranteed income for life) While N.E.S.T. is approved by the government there are no guarantees, so savings and annuity rates will be determined by the eventual fund value Potential income Actuaries forecast saving in N.E.S.T. will be meagre Using the % suggested someone earning 25k saving for 30 years will get retirement income approximately of £3693 per annum (presuming 2% growth) £5,500 (presuming 6% growth)
Things to consider
Pension clients recognise the importance of fund choice and access to experienced fund managers something which is not available through N.E.S.T.
As well as contribution levels it’s the funds performance which will drive the returns which in turn determines the eventual size of the pot at retirement.
N.E.S.T. has a lack of fund choice which sounds similar to Stake Holder Pensions.
The charges seem high for a low risk product
There seems to some contradictory advice, why would you put a 23 year old in the same fund as a 53 year old, most would consider stocks and shares a long term investment suitable for someone in there 20s There are considerable dangers for certain workers
The 2% upfront charge will hit the over 50s particularly hard as well as those not able to contribute over many years
The upfront charge is so the government can recoup the set up costs, but this is unfair and will penalise those contributing in the early years as eventually the charge is intended to come down to 0.3%
Employees could be worse off if employers cut back on their contributions
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