From 1 April 2017, changes to the National Employment Savings Trust Order 2010 and to the National Employment Savings Trust (NEST) rules will allow individual and bulk transfers into and out of the scheme in prescribed circumstances. These changes will help people who wish to consolidate their savings with NEST or with other pension providers, which is critical to reducing costs in pension schemes and avoiding large numbers of small scattered pots, often forgotten about by savers and hard to trace.
I can now confirm the charge structure that will relate to such transfers. Under the determination made by the previous Government, the trustee of NEST makes an annual charge on funds under management. This has been set by the trustee at 0.3%. In addition, to help cover the set up costs, the trustee makes a charge on contributions into the scheme from both employers and employees. This has been set by the trustee at 1.8%.
Introducing a new type of charge for transfers in would add complexity for members and be inconsistent with the Government’s policy on charges. Therefore the existing contribution charge and annual management charge will apply to funds transferred into NEST. The trustee will set the level of these charges as they apply to transferred funds.
Levying a 1.8% contribution charge in these circumstances would be punitive for members and would discourage pot consolidation. Charges on transfers in are the exception in modern pension schemes and our policy is to discourage such charges. Therefore, I expect the contribution charge that will apply to transfers to be less than 1.8% and place no lower bounds on its level, which is to be set by the trustee with due regard to the impact on members and scheme finances. The trustee will also be able to set a minimum transfer value.
In the case of bulk transfers, the trustee will also have the option of recovering the costs of administering the transfer from the employer.
The Government aim to achieve a balance between delivering good value to NEST’s members, managing impacts on the wider pensions industry and ensuring affordability for the taxpayer. I have been assured by the trustee that, in setting the level of the charges to apply to transfers, it will take into account its target market and public service obligations and am putting in place arrangements to enable me to keep this under review.