Millions of workers saving into Britain’s biggest pension scheme face being hit with hundreds of pounds in extra fees due to delays in repaying a £1.2billion Government loan. The National Employment Savings Trust (Nest), which holds 13.8million workplace pensions, is extending a controversial 1.8% “contribution charge” on savers for an additional six years – potentially costing higher earners nearly £1,000 more. The levy was designed to help pay off the start-up loan Nest received from taxpayers when it was created to support automatic pension enrolment.
It was supposed to end in 2032, but the repayment schedule has now been pushed back to 2038 because of sluggish growth. It means a worker earning £50,000 will pay an extra £440 in charges between 2032 and 2038. Someone on £100,000 will hand over an additional £945 during the same period.
Critics last night branded the delay “deeply unacceptable”, with financial experts warning that millions of unsuspecting workers are being penalised simply for being enrolled in a state-backed scheme. Scott Gallacher, Director at Rowley Turton, said: « It was always questionable whether Nest was even needed, given that other providers like The People’s Pension and NOW: Pensions were created to serve the auto-enrolment market.
« The repayment of Nest’s government loan is turning into a never-ending saga. The 1.8% contribution charge continues longer than expected, hitting older workers hardest, as they have fewer years left to recover that cost through growth and lower fees.
« While this isn’t a new fee hike, the extended timeline means many will pay more than originally anticipated. That said, I doubt it will undermine confidence – mainly because most savers have little idea how their workplace pension works or what it costs. And sadly, that lack of awareness is part of the wider pensions problem. »
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, told Newspage the burden of repaying the Government loan should never have fallen on workers. She said: « The idea that working people are being made to cover the costs of a state-backed loan through increased deductions from their pension savings is deeply unacceptable.
« Millions of people are now being expected to contribute more from their hard-earned income, not for better investment outcomes or improved service, but simply to repay a loan that should never have been allowed to fall on their shoulders in the first place. The extension of this repayment timeline only prolongs the injustice. Pension schemes exist to protect and grow peoples’ long-term savings – not to act as backdoor funding mechanisms for government liabilities.
« This is not just poor policy – it is a breach of the principle that retirement savings should serve the saver first and foremost. » Samuel Mather-Holgate, Independent Financial Adviser at Mather and Murray Financial, was even more blunt, saying: « Nest is probably the worst pension scheme members could belong to.
« Restrictions on transfers, investment options and retirement benefits make it the least flexible, and now one of the most expensive. The government has failed to produce an option of real substance for employers who wanted to arrange things simply. Instead, they have concocted this arrangement that only disadvantages its members. »
Entrepreneur Kundan Bhaduri, of The Kushman Group, added: « A government-backed scheme, running behind on its own loan repayments, is passing the cost of its inefficiency directly to its captive market. There is a grim irony in a national savings trust penalising people for saving.
« For a worker on a modest salary, this is not a trivial sum. It is several hundred pounds that should have been compounding for their future, not paying the interest on a bureaucratic loan.
« Nest simply sends the bill to its members, who are not just ordinary savers by the way. They are now underwriters for the state’s own slow-moving machinery. »
Nest has insisted the loan was necessary to establish a scheme that would support millions of people into retirement saving for the first time. Its chief executive, Ian Cornelius, said: “As the UK’s largest workplace pension provider, serving over 13m members, we continue to influence and advocate for better outcomes for low to middle income savers.
« We are proud to be investing in the UK economy and supporting the communities where our members live and work.”
Nest rejected the criticism and insisted it is important to note that a salary of £100,000 or £50,000 is not representative of most the scheme’s members.
It said Nest was established specifically to increase the rates of retirement saving for low and moderate earners. As a result, the average Nest member has a salary of just under £25,000 per year and often cycles in and out of work. It said 84% of Nest’s active membership has a salary income less than £40,000 per year.
Gavin Perera-Betts, Nest’s Chief Customer Officer, said: “Nest was set up to ensure low and moderate earners, previously shut out of traditional retirement savings, had a hardworking pension scheme to support them to save. We are run as a trust, which means we don’t make profits for shareholders.
“Our charges are enough to cover the costs of running a high-quality, best in class, pension scheme, specifically designed to offer true value for money for people on low to moderate incomes who often cycle in and out of pension saving.
“Pension saving is playing the long game. For the average Nest member, who has a salary of around £25,000, and may have multiple jobs through their saving journey, our charges work out as broadly equivalent to an AMC below half a percent over their saving lifetime. For this, Nest members get access to one of the most diversified pension funds in the UK which helped deliver 10% annualised growth over the past five years.”
Louise Fitzgerald, Nest’s Chief Financial Officer, said: “This year marked a significant milestone for Nest as we recorded a profit and began repaying our loan from the government. This was our first step to fulfilling the promise made when Nest was established – that we would deliver a world class pension service at no cost to the taxpayer.
“Nest is on track to pay back its government loan by 2038 – and we have been on track to meet this deadline since 2017. We are confident that our continued efforts will ensure financial stability and growth for the future.”
