The National Employment Savings Trust (NEST) will charge 2% on all contributions, the Government has confirmed.
It says NEST will meet the Pension Commission's ambition for a low cost scheme with an anticipated 0.3% annual management charge over the longer term.
However, to meet the costs of establishing the scheme, the initial level of charges will also include a small additional charge on contributions of about 2%.
It said it was "comparable to low charges currently being paid by members of large occupational schemes".
The department for work and pensions said until NEST is fully established, it faces an "inevitable gap between costs and revenues".
The government announced that it will make a loan to NEST to cover those costs, ensuring it is delivered at no overall cost to the taxpayer.
Pensions minister Angela Eagle said: "This is a fair and sensible funding package which delivers the Pensions Commission's vision of a low cost scheme in an affordable way.
"It balances the needs of members, taxpayers and the interest of the broader pensions industry. Market failure for low and moderate earners means they have not had access to a suitable low cost pension scheme and have not been able to save for their retirement.
"NEST will put this right."
NEST chairman designate Lawrence Churchill said: "I welcome the government's announcement. It demonstrates how NEST can deliver low charges to its members without putting a burden on taxpayers."
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