Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • MSE Guy
    • By MSE Guy 16th Mar 10, 6:16 PM
    • 1,628Posts
    • 1,255Thanks
    MSE Guy
    MSE News: Government unveils Nest pensions charges
    • #1
    • 16th Mar 10, 6:16 PM
    MSE News: Government unveils Nest pensions charges 16th Mar 10 at 6:16 PM
    This is the discussion thread for the following MSE News Story:

    "The Government has received a mixed response after announcing its charges for its new pension scheme, which starts in 2012 ..."

Page 1
    • ffacoffipawb
    • By ffacoffipawb 16th Mar 10, 7:31 PM
    • 2,678 Posts
    • 1,836 Thanks
    ffacoffipawb
    • #2
    • 16th Mar 10, 7:31 PM
    • #2
    • 16th Mar 10, 7:31 PM
    This is the discussion thread for the following MSE News Story:

    "The Government has received a mixed response after announcing its charges for its new pension scheme, which starts in 2012 ..."

    Read the full story:




    Originally posted by MSE Guy
    Hopefully irrelevant after May 6th.
  • jamesd
    • #3
    • 16th Mar 10, 9:30 PM
    • #3
    • 16th Mar 10, 9:30 PM
    So lets see:

    1. 0.3% ongoing annual charge and 2% on money going it. Hargreaves Lansdown offers HSBC's UK all share tracker fund at 0.25% annual charge and 0% on money going in, so NEST that was introduced at the urging of the Pensions Commission to be cheaper than other pensions is more expensive than even one SIPP, let alone competitively sold personal pensions.

    2. You can't transfer money out of NEST to a more competitive deal, even though you can for other workplace pensions.

    3. The NAPF claim that the charges match those of the best workplace pensions today is ridiculous. I have a FTSE All-Share tracker at work with a 0.1% annual charge and no initial charge, so this proposal is three times as expensive even without the initial charge.

    Anyone threatened with having to pay into NEST should be asking their employer to set up a decent, competitive, low cost scheme instead.

    If your employer won't do that, alternatives include the relatively high risk option of getting 30% tax rebate on VCT investments, or using personal pensions. Today these don't get employer contributions but that's another discussion you can have with your employer.
    Last edited by jamesd; 16-03-2010 at 9:35 PM.
    • dunstonh
    • By dunstonh 17th Mar 10, 8:04 AM
    • 98,295 Posts
    • 66,538 Thanks
    dunstonh
    • #4
    • 17th Mar 10, 8:04 AM
    • #4
    • 17th Mar 10, 8:04 AM
    As it currently stands, there is also no higher rate relief on NEST.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • hugheskevi
    • By hugheskevi 17th Mar 10, 12:24 PM
    • 2,230 Posts
    • 2,899 Thanks
    hugheskevi
    • #5
    • 17th Mar 10, 12:24 PM
    • #5
    • 17th Mar 10, 12:24 PM
    As it currently stands, there is also no higher rate relief on NEST.
    Dunstonh, could you reference this please?

    My understanding is that the individual's contribution rate is 4%, covering the band of earnings between about 5,000 and 35,000 (ish).

    But, that just determines what the contribution is, and after that the contribution would receive tax treatment in the same way as a contribution to any other type of pension.
    • dunstonh
    • By dunstonh 17th Mar 10, 1:09 PM
    • 98,295 Posts
    • 66,538 Thanks
    dunstonh
    • #6
    • 17th Mar 10, 1:09 PM
    • #6
    • 17th Mar 10, 1:09 PM
    Dunstonh, could you reference this please?

    My understanding is that the individual's contribution rate is 4%, covering the band of earnings between about 5,000 and 35,000 (ish).
    All you read says employees will contribute 4%, employers 3% and the government 1%.

    I havent seen anything that suggests the Govt contribution will increase if you are a higher rate taxpayer.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • hugheskevi
    • By hugheskevi 17th Mar 10, 6:17 PM
    • 2,230 Posts
    • 2,899 Thanks
    hugheskevi
    • #7
    • 17th Mar 10, 6:17 PM
    • #7
    • 17th Mar 10, 6:17 PM
    All you read says employees will contribute 4%, employers 3% and the government 1%.

    I havent seen anything that suggests the Govt contribution will increase if you are a higher rate taxpayer.
    I've followed Personal Accounts/NEST closely and I'm certain that the contributions will be eligible for higher rate tax relief - the 4/3/1 line is about pitching tax relief as a matching contribution, which people tend to understand better, rather than a different system of tax relief.

    I think the tax relief will operate in the same was as personal pensions do currently, ie basic rate relief at source, with higher rate relief claimed from HMRC.

    I imagine this might cause a bit of a problem for higher rate taxpayers not subject to self-assessment given the existing number of people failing to claim higher rate relief.
    • stphnstevey
    • By stphnstevey 17th Mar 10, 7:09 PM
    • 2,977 Posts
    • 488 Thanks
    stphnstevey
    • #8
    • 17th Mar 10, 7:09 PM
    • #8
    • 17th Mar 10, 7:09 PM
    The real cost to employees will be the lack of salary increases due to employers compensating for their compulsory employer contributions.

    The money has to come from somewhere, employers are not getting anything extra to contribute to employees pensions.

    2% charges on contributions will be nothing in comparison to a 2% loss in salary increase

    PS - how long will the 2% charge last for?
    Last edited by stphnstevey; 17-03-2010 at 7:16 PM.
  • Batchy
    • #9
    • 17th Mar 10, 7:21 PM
    • #9
    • 17th Mar 10, 7:21 PM
    The real cost to employees will be the lack of salary increases due to employers compensating for their compulsory employer contributions.

    The money has to come from somewhere, employers are not getting anything extra to contribute to employees pensions.

    2% charges on contributions will be nothing in comparison to a 2% loss in salary increase

    PS - how long will the 2% charge last for?
    Originally posted by stphnstevey
    I guess it depends how long you keep paying in contributions for lol
    • yelf
    • By yelf 17th Mar 10, 8:01 PM
    • 841 Posts
    • 236 Thanks
    yelf
    Dont forget at least one of the investment options wil be HEAVY in gilts (so basically the goverment will be borrowing from the pension funds they receive from forcing employees hands)
  • stueystu
    Nest Pension
    Hmm, run this by me again we are will now have to pay an additional amount into a pension scheme... no choice... forgive me but is this not why i pay national insurance? if so why do we have to pay into 2 pension schemes?
    • matchmade
    • By matchmade 18th Mar 10, 5:46 PM
    • 57 Posts
    • 41 Thanks
    matchmade
    Hmm, run this by me again we are will now have to pay an additional amount into a pension scheme... no choice... forgive me but is this not why i pay national insurance? if so why do we have to pay into 2 pension schemes?
    Originally posted by stueystu
    Your NI payments are not saving for your old age - all they do is pay for *today's* pensioners and all the people living off social security nowadays. When you retire, you will depend on the NI payments of younger people who are working. The Government dosn't mind paying the compulsory state pension but does object to people failing to add to this with their own savings or pension, and relying on top-up benefit payments from the State. It feels too many people are failing to save for their old age, so it is forcing you and your employer to save with this new tax.

    Forgive my cynicism but I fully expect that any modest pension one gets from this new scheme will mean a 1 for 1 withdrawal of the benefit you would otherwise have been entitled to claim. You will be no better off: the government is just taking the money off you early in your life rather than from general taxation when you retire.

    I also expect that if you die before taking this new pension, or take the pension for only a few years, the whole lump sum you've saved will be lost and you cannot pass it on to your descendents. It's a swizz, but that's the way it works - die early and your savings will go to fund the people who live longer.

    I also dislike this new tax because it's yet again penalising employers. It's a straight tax on jobs. Why should employers contribute to their employees' pensions, especially if you a small employer? Employers will have to administer the blasted thing as well, for no reward. It would have been so much simpler just to do it through NI or PAYE. But no, this Labour government always legislates everything to death, and places ever-increasing burden on employers. Why would any small employer give a job to a woman of child-bearing age nowadays, when you face the risk of her disappearing after a few months onto maternity leave, and the poor employer has to pay for her to have a baby?
    • hugheskevi
    • By hugheskevi 18th Mar 10, 5:47 PM
    • 2,230 Posts
    • 2,899 Thanks
    hugheskevi
    Hmm, run this by me again we are will now have to pay an additional amount into a pension scheme... no choice... forgive me but is this not why i pay national insurance? if so why do we have to pay into 2 pension schemes?
    There is a choice - you can choose to opt-out. You will get re-enrolled every 3 years, but you can opt-out each time.

    You pay NICs to fund benefits and health care (in theory) and in the process accrue rights to Basic State Pension and State Second Pension (or a contracted-out pension in place of State Second Pension).

    The purpose of NEST is that the combination of Basic State Pension and State Second Pension will, for most people not saving into a private pension, be insufficient. Increasing State Pension, and hence taxation, was considered unpalatable.

    But given most people without private provision were headed for an inadequate retirement, something had to be done. Hence a third pension - NEST - which is about as close as you can get to compulsory saving in a private pension.

    Mind you, NEST is not particularly generous, and is considered to provide the minimum people should want to have, with even average earners probably needing to save above the minimum contribution rate, presumably in a 4th pension
    • yelf
    • By yelf 18th Mar 10, 5:47 PM
    • 841 Posts
    • 236 Thanks
    yelf
    Hmm, run this by me again we are will now have to pay an additional amount into a pension scheme... no choice... forgive me but is this not why i pay national insurance? if so why do we have to pay into 2 pension schemes?
    Originally posted by stueystu
    You can opt out, but you have to opt out every 3 years
    • dunstonh
    • By dunstonh 18th Mar 10, 6:07 PM
    • 98,295 Posts
    • 66,538 Thanks
    dunstonh
    forgive me but is this not why i pay national insurance?
    It is if you only want to live on 5000 a year (although of course NI is not just about the state pension).

    Forgive my cynicism but I fully expect that any modest pension one gets from this new scheme will mean a 1 for 1 withdrawal of the benefit you would otherwise have been entitled to claim. You will be no better off: the government is just taking the money off you early in your life rather than from general taxation when you retire.
    Benefits are being phased upwards in age and almost certainly longer term will be reduced. However, typically a 30 year old will get around 3-4 times what they pay in without an employer contribution so it makes sense for nearly everyone to join this scheme or the employer equivalent to get the free money from the employer.

    I also expect that if you die before taking this new pension, or take the pension for only a few years, the whole lump sum you've saved will be lost and you cannot pass it on to your descendents. It's a swizz, but that's the way it works - die early and your savings will go to fund the people who live longer.
    That is incorrect.

    I also dislike this new tax because it's yet again penalising employers. It's a straight tax on jobs.
    actually, its one of the few socialist things this Govt has done (assuming it doesnt get killed off after the election). The other being overspending and borrowing too much.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • jamesd
    Hmm, run this by me again we are will now have to pay an additional amount into a pension scheme... no choice... forgive me but is this not why i pay national insurance? if so why do we have to pay into 2 pension schemes?
    Originally posted by stueystu
    Because this government has agreed to increase the Minimum Income Guarantee with inflation. With the situation at the time of the Pensions Commission that would mean that a high proportion of pensioners would end up on that means tested benefit. So this new pension is introduced to try to get the poorer pensioners to pay into a pension that will take their income above the level where they would qualify for MIG.

    So it's a pension to avoid a future tax bill paying for higher MIG payouts to more people.

    And that's also why poorer people are most likely not to benefit, because they would otherwise qualify for the MIG. Those on a low income who do benefit will be the ones who start out on a low income and improve their situation or who are more committed to providing for their future than average. But these interested people would probably benefit more from alternative pensions with a broad range of investment options instead. Those who dislike means tested benefits also benefit because they are less likely to need them.

    You're already paying into at least two pension schemes: basic state pension and S2P/Additional State Pension. Additional State Pension is earnings-related but is being made flat rate gradually starting from 2010, at the cost of less benefits for average and higher earners, to increase payouts to low earners. Another part of the effort to keep lower earners at a high enough income so that they don't qualify for the MIG.
    Last edited by jamesd; 18-03-2010 at 10:09 PM.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,273Posts Today

6,524Users online

Martin's Twitter
  • The maths is wrong. Even if MPs weren't given a penny by the state in salary or expenses, it'd save a trivial count? https://t.co/Kgskcjd6eG

  • What an utterly depressing watch this is. I think the MP handles it as well as possible. Good on him for not just t? https://t.co/LrSY56HbPA

  • RT @Caitch22: @MartinSLewis Maybe the cheap housing, final salary scheme generation that want to tax the young should pay for their own car?

  • Follow Martin