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National Employment Savings Trust

Volume 507: debated on Tuesday 16 March 2010

I can confirm the Personal Accounts Delivery Authority signed yesterday the contract for the administration of NEST with Tata Consultancy Services. This marks another important milestone on the road to delivering a pension scheme for the millions of people currently excluded from low-cost pension saving.

As the terms of this contract have been finalised, the Government are able now to set out their plans for financing NEST.

NEST will be paid for by member charges. In the long term, it will be self-financing, and Government expect it to realise the Pensions Commission’s ambition of a charge level as low as 0.3 per cent. of members’ funds under management—an annual management charge (AMC) of 0.3 per cent.

Nevertheless, NEST will need to meet set-up and operational costs incurred in the period before charge revenues are sufficient to meet the full costs of the scheme. Therefore, NEST is expected to make a small additional charge on contributions of around 2 per cent., until set-up costs are extinguished.

This means the members of NEST, many of whom are expected to have low and moderate earnings, will, for the first time, be able to save for a pension while facing charges at levels currently only available to higher earners, or those accepted into large pension schemes.

NEST will have a public service duty, to accept all employers who want to use the scheme to discharge their duty to automatically enrol workers, irrespective of costs. This means NEST will be required to bear costs other pension providers do not face. In recognition of this, and in order to preserve the scheme’s low-cost aims, the Government intend to provide relief to the scheme to limit the overall interest charges scheme members incur on funds borrowed to the Government’s cost of borrowing. The Government are currently seeking the European Commission’s approval that this approach is consistent with European rules on competition and state aid.

The Government believe that this funding package represents a fair balance between delivering good value to NEST’s members, ensuring affordability for the taxpayer and putting NEST on a level playing field with the existing pensions industry.