The government scheme aimed at encouraging low-paid employees to save for their retirement could be a “disaster”, experts have warned.
The call came after the government revealed that all contributions into the National Employment Savings Trust (Nest) would be subject to a surprise 2% fee, the Times has reported.
Between three million and six million low-to-moderate earners are expected to join Nest, the centrepiece of government plans to force all employers to automatically enrol employees in a workplace scheme of minimum standards from 2012.
Nest, the default option for employers unable or unwilling to offer anything better, has been billed as a super low-cost savings scheme, and the annual management charge of 0.3% is low by industry standards.
However, the government has declined to pay for almost any of the start-up costs and instead is extending a loan to the scheme. To repay the loan and interest, Nest is implementing the controversial contribution commission – which will apply to all contributions, whether from employer, employee or taxman.
It could therefore be an expensive way of saving for some people, and many would be deterred by upfront charges that might actually shrink their savings pots in the early years, experts said.
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Fraser Smart, of the employee benefits consultancy Buck Consultants, told the Times: “Nest can dress this up as prettily as it likes, but the bottom line is this has the potential to be extremely expensive.”
Ros Altmann, an independent consultant, added: “The idea of taking away 2% of people’s money before they even start saving strikes me as high, but of course the costs of administering tiny pots of money for decades is also high. Call me cynical, but this scheme has disaster written all over it.”