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

danielanthony

I love the chat on here slagging people off who don't save for retirement when their NI contributions should be covering their retirement. For the confused:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/NationalInsurance/IntroductiontoNationalInsurance/DG_190048

You pay National Insurance contributions to build up your entitlement to certain state benefits, including the State Pension. The contributions you pay depend on how much you earn and whether you're employed or self-employed. You stop paying National Insurance contributions when you reach State Pension age.

Right then, so if people are paying into NEST for their pensions then surely NI contributions will go down? No? Thought not.

jamesd

Bit too soon to have people come out with directly competing products and I haven't yet looked around to find lower cost matches for the NEST fund offerings. Vanguard, HSBC, Blackrock and perhaps others seem like possible candidates. We'll see.

A company will need to use NEST or something else. That puts them in a position where they have to make some choice. Might as well be a good one, or perhaps one that's cheaper for them than NEST.

HL is taking full trail commission, while no investment advice is provided, something other IFA firms could do, reselling Fidelity or Cofunds platforms. Or reselling whatever is introduced specifically to compete with NEST.

HL seems to find selling pensions with 0% initial commission profitable enough, and in the ISA, even with some trail commission rebate. I expect that they will be happy to go after NEST competition business as well, looking to see some customers use a broader range of funds. If pension companies can't or don't want to compete, that's fine. I'd be surprised if a firm like Vanguard wasn't looking forward to this as a good opportunity to exploit.

wotsthat

You pay National Insurance contributions to build up your entitlement to certain state benefits, including the State Pension. The contributions you pay depend on how much you earn and whether you're employed or self-employed. You stop paying National Insurance contributions when you reach State Pension age.

Right then, so if people are paying into NEST for their pensions then surely NI contributions will go down? No? Thought not.

Don't believe everything you read on an internet site especially if it's got .gov.uk in the title.

You pay National Insurance contributions to build up your entitlement to certain state benefits, including the State Pension should read You pay National Insurance contributions to build up yours and every other bleeders entitlement to certain state benefits, including the State Pension

jamesd

danielanthony, yes, the NI would end up paid to the employee in their pension rather than taken as an NI payment, so it would go down, just as it does today for salary sacrifice pension schemes. NEST payments, like other work or private pensions, will be in addition to the state pensions, not instead of them.

For people who are more than a decade or two from retirement it was expected that the total value of basic and additional state pensions would be around £7,000 a year. That's sufficient to live on if you aren't paying rent or are getting housing benefit. The Pensions Commission wanted a NEST-like scheme to encourage low earners to get pension income that would take them above benefit levels, to reduce the long term tax burden of paying those benefits.

The current government seems to be planning to introduce a high tax version that would pay £10,000 a year, where private pensions wouldn't affect the amount of state pension paid. Losers under this proposals would be those with full time work records and merely below average or higher incomes, big gainers those with little or no work record or a work record with low pay, who could even see their income increase when they retire.

yelf

feesarefare wrote: »

Purch im with you- I wish people would stop posting that SIPPs are the only type of personal pension!!

HL are the main culprits in this: they make out a SIPP is wonderful because you get tax relief when investing in one.

SnowMan

dunstonh wrote: »

You now have have companies offering money purchase schemes where the employer pays into it and you get rates like only 1 in 5 joining the scheme, even with the free money. Mainly as they are not put under any pressure.

With NEST allowing an opt out, I bet you will get significant numbers that will opt out. Hopefully not the majority but I would guess now that the take up rate will be around 70%. NEST is good but it should be compulsary (or where there is an equivalent group/occ scheme that should be).

I would also say that it should be compulsory to join. Options in relation to pensions in the past has been so often where the system has gone wrong.

In 1988 people were given the option to opt-out or not join company pension schemes as of right. It was hailed as freedom to choose. But it turned out to be the freedom to be able to make the wrong decision. Direct salesforces gave appalling advice, a regulator was asleep on the job and people of their own accord who did not understand what they were doing or who were focused in on the short term left or did not join schemes in their droves. The fact that scheme membership was not compulsory was the catalyst.

Then there was contracting-out of SERPS or not. This again horribly complicated pensions, should I opt out should I opt in; a decision almost impossible for the layperson to make.

We need simplification in the pension system and the removal of unnecessary choices so people at least have some chance of understanding the system and knowing and planning what they have coming into payment in retirement.

But now we have a system where people are going to be given the choice not to join NEST (or it's equivalent) and lose out on the employer contribution. Freedoms of choice are very important but we have to recognise there are situations when it doesn't make sense to give a choice and this is one.

It just seems ridiculous that we again are going to give people the freedom to make the wrong decision but as they say 'we live but we never blood* well learn'

Linton

danielanthony wrote: »

I love the chat on here slagging people off who don't save for retirement when their NI contributions should be covering their retirement. For the confused:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/NationalInsurance/IntroductiontoNationalInsurance/DG_190048

You pay National Insurance contributions to build up your entitlement to certain state benefits, including the State Pension. The contributions you pay depend on how much you earn and whether you're employed or self-employed. You stop paying National Insurance contributions when you reach State Pension age.

Right then, so if people are paying into NEST for their pensions then surely NI contributions will go down? No? Thought not.

You seem rather confused. NI contributions do not cover retirement, they provide entitlement to the State Pension.

The State Pension is about £5K + a bit extra from SERPS/SecondPension. Most people would find £5K/yr much too small for an enjoyable final third of their life. Therefore they need to fund some extra. This could be NEST, Private/Company Pensions, ISAs or whatever.

feesarefare

jamesd wrote: »

Bit too soon to have people come out with directly competing products and I haven't yet looked around to find lower cost matches for the NEST fund offerings. Vanguard, HSBC, Blackrock and perhaps others seem like possible candidates. We'll see.

A company will need to use NEST or something else. That puts them in a position where they have to make some choice. Might as well be a good one, or perhaps one that's cheaper for them than NEST.

HL is taking full trail commission, while no investment advice is provided, something other IFA firms could do, reselling Fidelity or Cofunds platforms. Or reselling whatever is introduced specifically to compete with NEST.

HL seems to find selling pensions with 0% initial commission profitable enough, and in the ISA, even with some trail commission rebate. I expect that they will be happy to go after NEST competition business as well, looking to see some customers use a broader range of funds. If pension companies can't or don't want to compete, that's fine. I'd be surprised if a firm like Vanguard wasn't looking forward to this as a good opportunity to exploit.

Quite disappointed in your response.

It would appear you can offer no real alternative to NEST for the group we are talking about ( the group that NEST is aimed at)

Therefore you havent been able to answer my original gripe with the MSE article which was "£4XX worse off"-worse off than what?

Try and make this simple.

Employer without current scheme isnt

1) going to pay to set up an alternative to nest
2) go to the trouble of setting up a salary deduction system for the odd person who decides they are going to opt out so they can have a low cost SIPP will HL or whoever
3) isnt going to be concerned about lack of fund choice for their employees.

Employer without a current scheme is

1) going to look at the least painfull/cheapest for them way to meet the legislation.

jamesd

feesarefare, I suggest that you either go and look at the cheapest fund offerings from HL or wait a little while for more announcements of competing product launches like the one from HSBC today.

An employer without a pension scheme is going to have to sign up for some pension. That could be NEST or it could be something else. I assume that they will want to use the same one for all of their employees.

I agree that they will look at the least painful and/or cheapest option. That's why I'm interested in MSE providing something easy that they can look at which will get they and their employees a better deal.

feesarefare

jamesd wrote: »

feesarefare,

I suggest that you either go and look at the cheapest fund offerings from HL

James, are they available through a employer funded pension arrangement?

or wait a little while for more announcements of competing product launches like the one from HSBC today.

It looks like the HSBC product doesnt cater for small pension pots- exactly what NEST is going to do isnt it?

I agree that they will look at the least painful and/or cheapest option. That's why I'm interested in MSE providing something easy that they can look at which will get they and their employees a better deal

Fair enough, but MSE posting Daily Mail style headlines certainly doesnt help.