MSE News: Government 'Nest' pension fees could hit joiners for 20 years

jamesd

Kind of them to confirm that use of NEST will prove that someone has an employer who doesn't really care about their employees or who is too lazy to find one of the easy to find alternatives that offers a better deal, without the high charges and ban on transferring money out to something that offers a good deal.

It's easy in the private market to get initial charges of 0% and annual charges lower than 0.3%, with 0.1% achievable in some places today, depending on the type of fund. And that's before people launch funds specifically intended to undercut NEST.

If your employer is planning to use NEST, ask them to use something decent instead.

The news isn't all bad. At least they didn't stick to only a FTSE All Share Index tracker and plan to offer a global developed (western) market tracker of some sort - the FTSE or MSCI World. Shame that those indexes completely miss the emerging markets area where the biggest growth is likely to be. (sigh) So bad deal on the investment choices as well.

Shame that a good idea from the Pensions Commission - a low cost pension scheme with auto-enrollment - should end up as an expensive scheme instead.

feesarefare

jamesd wrote: »

Shame that a good idea from the Pensions Commission - a low cost pension scheme with auto-enrollment - should end up as an expensive scheme instead.

What are you comparing to when you call it expensive?

wotsthat

Of course this will be of interest to those people already planning for financial independence in retirement. However, those people will already be doing this regardless of NEST.

If this is reported in the media as being an example of 'rip off' Britain even though the charges look reasonable it'll be a nail in NEST's coffin before it's even started as people divert their cash to other 'necessities'. I'm bemused that some people will happily pay Sky over £50/ month but won't save for retirement - you can watch crap telly on Free view/sat for the cost of the license fee.

As a nation we just cannot continue to allow people who can afford to save, but don't, to throw themselves at the mercy of the state in retirement. There should be two choices:

- pay into a retirement fund/ company pension of your choice (and prove you are doing it) or
- be forced to join NEST.

The scheme should be compulsory. We need to help the stupid/ apathetic/ deluded/ immortal young of today so that they don't turn into bitter old farts that are a burden to the young of tomorrow.

jamesd

feesarefare, competitive private sector pensions and decent large employer schemes that offer trackers at less than 0.3% a year, with 0% initial charge and no ban on transferring money out.

The multi-asset fund looks like the hardest one to beat, but that depends on just what they mean by multi-asset and whether it's just balanced managed under another name.

It's easy to find more expensive deals than NEST as well but there's no need for consumers or employers to pick something other than the best options.

Independent advisers like yourself will surely be able to offer competitive services with fair charges, though perhaps at higher cost. I assume that you'll be able to offer a better selection of investments that could perform better to offset any extra costs involved.

Here comes the start of people directly trying to beat NEST, from a place that already offers competitive tracker funds more cheaply than NEST: "HSBC plans to rival Nest with workplace retirement service".

It'll be interesting to see whether they and others offer products that let firms like yours undercut NEST.

dunstonh

If this is reported in the media as being an example of 'rip off' Britain even though the charges look reasonable it'll be a nail in NEST's coffin before it's even started as people divert their cash to other 'necessities'.

necessities like McDonalds or another X Box game. Or the plasma TV that is too big for the room it is in.

feesarefare

jamesd wrote: »

feesarefare, competitive private sector pensions and decent large employer schemes that offer trackers at less than 0.3% a year, with 0% initial charge and no ban on transferring money out.

Granted, but we are talking here about an arrangement that needs to cater for the "stupid/ apathetic/ deluded/ immortal young"

It's easy to find more expensive deals than NEST as well but there's no need for consumers or employers to pick something other than the best options.

But in the real world many employers couldnt care less about charges. As far as consumers picking the best option- for most these days that option is do nothing.

Independent advisers like yourself will surely be able to offer competitive services with fair charges, though perhaps at higher cost. I assume that you'll be able to offer a better selection of investments that could perform better to offset any extra costs involved

In most GPPs these days the bulk of people plump for the "lifestyle" funds. The schemes we have (Friends Prov, Aegon, Scot Widows) have all the "fashionable" fund choices yet less than 5% use them.

I note you concede that IFA schemes will probably be at a higher cost, which is correct. Thats why I think the tone of the MSE article saying people will be "worse off" under NEST is misleading.

wotsthat

jamesd wrote: »

If your employer is planning to use NEST, ask them to use something decent instead.

The trouble is that the target market aren't interested in funding their retirements and probably haven't even heard of NEST. I'd be surprised if someone without any pension provision whatsoever will be discussing the merits of NEST vs. another scheme based on the charges.

More likely the discussion will be on the subject of why they've come out with less money that month.

wotsthat

necessities like McDonalds or another X Box game. Or the plasma TV that is too big for the room it is in.

There are many industries built on persuading us that the crap they produce is necessary and all too many buy-in (literally) to this belief system.

I saw a TV ad last night where you text in the name of your partner and it tells you how the relationship will go - vital information I'm sure but by texting in you would be committing to receiving further texts for £4.50/ week! That's just a tax on the stupid - we have to save these people from themselves.

jamesd

wotsthat wrote: »

The trouble is that the target market aren't interested in funding their retirements and probably haven't even heard of NEST. I'd be surprised if someone without any pension provision whatsoever will be discussing the merits of NEST vs. another scheme based on the charges.

feesarefare wrote: »

Granted, but we are talking here about an arrangement that needs to cater for the "stupid/ apathetic/ deluded/ immortal young"

Those people will be presented with a workplace scheme to think about. We and MSE can help by providing comparisons and information about alternatives that offer a better deal, just as MSE does some of that now for existing pensions.

feesarefare wrote: »

But in the real world many employers couldnt care less about charges.

That's why I use plain words and write that employers using NEST are either lazy or just don't care about their employees. And why I want MSE to do comparisons so there's minimal excuse not to look and minimal time needed to pick a better alternative. Small business owners in particular are often very busy - not lazy or uncaring - and making a choice fast and easy for them can be very helpful.

Martin's an example in the small business area - I don't think that anyone could justify calling him lazy or uncaring, just busy, passionate and committed.

feesarefare wrote: »

In most GPPs these days the bulk of people plump for the "lifestyle" funds. The schemes we have (Friends Prov, Aegon, Scot Widows) have all the "fashionable" fund choices yet less than 5% use them.

Agreed. That's also the situation at the workplace pension that I looked at as part of deciding (not) to seek to become a trustee. Good defaults are very important - the one I'm in uses a mixture of two multi-asset funds plus lifestyling. Though I don't use the default.

feesarefare wrote: »

I note you concede that IFA schemes will probably be at a higher cost, which is correct. Thats why I think the tone of the MSE article saying people will be "worse off" under NEST is misleading.

MSE can rightly compare with the best options on the market, though. I think that MSE is taking something around the right tone there, and that it should continue to do that and more in the future as part of leveraging NEST to help improve the deals available to consumers via their employers, and in the non-work pension market.

I'm not saying that IFA options are the worst on the market. Take Hargreaves Lansdown. That's an IFA firm that offers some fairly inexpensive tracker funds (0% initial, 0.28% annual) even though it's a SIPP. And there are cheaper alternatives out there. For other IFA firms there's surely some room to undercut a 1.8% initial charge or add value to justify that or more, while still keeping the overall cost low. If not now, when service providers and fund houses get their NEST competitor products into place.

feesarefare

jamesd wrote: »

Those people will be presented with a workplace scheme to think about. We and MSE can help by providing comparisons and information about alternatives that offer a better deal, just as MSE does some of that now for existing pensions.

Like what for example?

MSE can rightly compare with the best options on the market, though.

Thats all well and good as long as they compare apples with apples.

I think that MSE is taking something around the right tone there, and that it should continue to do that and more in the future as part of leveraging NEST to help improve the deals available to consumers via their employers, and in the non-work pension market

I think you are being somewhat disingenous if you are trying to say that a company that has done nothing up to now will fund the implementation of an alternative scheme to NEST, so their staff can benefit from lower charges!

I'm not saying that IFA options are the worst on the market. Take Hargreaves Lansdown. That's an IFA firm that offers some fairly inexpensive tracker funds (0% initial, 0.28% annual) even though it's a SIPP.

But in that scenario they are not acting as an IFA - there is no advice there, they are merely providing acces to funds.

And there are cheaper alternatives out there.

Id be interested to find out what? remember to compare apples with apples - workplace scheme with employer contributions

For other IFA firms there's surely some room to undercut a 1.8% initial charge or add value to justify that or more, while still keeping the overall cost low.

Why would they want to get involved in that market? The life companies cant make money at the moment on pensions

If not now, when service providers and fund houses get their NEST competitor products into place

See above