The dangers of NEST

Following recent announcements about terms of the new National Employment Savings Trust (NEST), which will be launched in 2012, Saga is warning of dangers for older workers and short-stayers being automatically enrolled.

Their reservations include the impact of the 2% upfront cost of the new national pension scheme on the over 50’s.

The 2% initial fee will be deducted from contributions for an as yet undetermined period of time, to fund the cost of establishing NEST as a national pension scheme. Saga point out that this initial charge will be particularly costly for older savers and those who do not remain invested for very long.

Saga also warn of the dangers of ‘levelling-down’. This describes a scenario where an employer uses the introduction of NEST as an opportunity to reduce the level of contributions they make to their existing pension scheme, in line with the newly introduced minimums.

With those employers who already run pension schemes contributing an average of 6% currently, the risk of these contributions being reduced to 3% is significant.

Other concerns highlighted by Dr Ros Altmann from Saga include the risk that some of those automatically enrolled in NEST will find the scheme is unsuitable for their needs, that NEST pensions are likely to be very low and that the scheme might not be suitable for younger savers or lower earners.

Photo courtesy of zenera.