Arguing that the current charges of Nest are “not cheap enough”, John Cridland of Confederation of British Industries (CBI) has urged the government to extend Nest’s loan repayment period.
The National Employment Savings Trust (NEST) scheme is expected to levy 1.8 percent contribution charge and 0.3 management charge annually once it is introduced in the UK in October 2012.
The treasury should extend the £700 million state loan repayment period of the Department of Works and Pension (DWP) and the DWP needs to “win a battle” with the treasury, Mr. Cridland said.
Citing the example of the private providers which levies 0.4 percent to 0.6 percent annual charges to deliver defined contribution pension schemes, Mr. Cridland said Nest needs to lower charges to “justify its existence”.
“Nest is not cheap enough. It has an effective 0.43 per cent annual charge, taking into account the annual management charge and the contribution charge, which I think it’s appropriate to do, given that the contribution charge is likely to be around 20 years, well beyond the foreseeable policy horizon”, said Mr. Cridland.
Criticising the high proposed administration and management costs, Mr. Cridland said: “To justify its existence, and to recover the Turner ambition, Nest has to get cheaper. To do this, Nest and the Department for Work and Pensions needs to win a battle with the Treasury”.
Arguing the advance received by Nest should be long-term, Mr. Cridland said: “The Treasury is insisting that the £700m loan it made to Nest be repaid quickly, and it’s this that has driven the design of the charge, based on the fact that it’s viewed as spending in the national accounts.
“But it’s a loan, on the balance sheet, and should be treated as such”, he concluded.