The National Employment Savings Scheme sets a new benchmark for charges and features in the private sector group and individual pensions market.
The regulatory small print is unclear but this much we know.
●Charges: the Nest benchmark is a 0.3 per cent annual management charge and 1.8 per cent contribution charge. Fee-based corporate advisers can match this for larger company schemes where staff turnover is low and earnings are above average. For all other employers – and the self-employed – Nest charges look competitive.
●Asset management: Nest sets a new benchmark for low-volatility, multi-asset investment strategies for DC default funds, reversing the practice of directing 100 per cent of the contributions of younger members into equities.
●Transfers and new sales activity: initially Nest contributions will be capped at £3,600 a year in 2005/06 terms (equivalent to £4,300 today) and the scheme will not accept transfers in or out. These features are likely to change in 2017.
The Financial Services Authority will monitor inappropriate transfer advice targeted, for example, at Nest members with older plans.
But there are no immediate plans to replace “RU64”, the rule introduced in 1999 that currently sets a benchmark DC annual management charge for contract-based schemes of 1.5 per cent.
This oversight means there is nothing to prevent a sales bonanza of overpriced pension plans before sales commission is abolished in 2013 under
the Retail Distribution Review.