The expected charging structure for the National Employment Savings Trust (NEST) has received a mixed reaction.
The government said it anticipated NEST would charge a 0.3% annual management charge over the longer term - but said their would also be an additional charge on contributions of about 2% to meet the costs of establishing the scheme.
It said it was "comparable to low charges currently being paid by members of large occupational schemes".
Buck Consultants head of technical services, Kevin LeGrand, says: "It is pretty much last chance saloon in terms of the credibility of the government's pensions policy to get auto-enrolment and NEST up and running and to get confidence back into saving for pensions.
"It will increase the costs in the early days for those who are not going to be contributing for long, but for those contributing longer it will be good once you get past the period where 2% has to be paid.
"They could have done it at 0.4% or 0.5% annual management charge without any set up charge over the whole period."
TOR Financial Consulting managing director David Harris says the charges are "outrageous" - noting charges for the Australian superannuation system and the New Zealand KiwiSaver programme, often cited as a model for the UK reforms, were far, far lower.
He says: "Not only are people going to get hit by means-testing, they are also going to be hit by these enormous start-up charges."
Harris adds: "This is going to be seen as an unmitigated tax."
Punter Southall head of defined contribution Damian Stancombe said the charging structure could be "disastrous" for providers over the longer term as the ongoing management charge would be just 0.3% - lower than that offered by most commercial providers.
"This takes us back to 10 years to before the introduction of stakeholder. I do not see that as positive. I think it is disappointing they have gone back in time."
Barnett Waddingham associate Mark Futcher adds: "This is ‘back to the future' on charging structures and a move away from clear and simple stakeholder guidelines that have been promoted so heavily by the government since 2001.
"I suspect that stakeholder providers will welcome this news! Once again there is no real detail on this up front charge; how long will it last for, will everyone pay it regardless of when they join, will it apply to all contributions?"
He adds: "I believe that this also contradicts their investment statement that they do not want to give members a negative impression in the early years hence the investment option will be cash. With returns on cash so low at the moment members may still see a fund value less than what they contributed due to the initial charge."
Despite this, Standard Life senior pensions policy manager Andy Tully said the charging structure would enable NEST to recoup set-up costs more quickly.
He says: "As an industry we don't want the government subsidising NEST excessively and this will help that because they will be able to repay any government loans quicker because their income will be higher.
"From a consumer point of view, people who only pay for a short time will get a worse deal because they will pay a higher charge."
Aegon also welcomed the announcement - saying it would make NEST financially sustainable while also being fair to customers.
Head of business regulation Steven Cameron says: "A combination charge is the best way to reduce the timing mismatch between income from charges and costs incurred while also being fair to members.
"We are pleased DWP has recognised this. It will reduce the amount the scheme will have to borrow and the time taken to break even. It will also reduce the risk of additional tax payer subsidy if initial opt out rates or longer-term persistency differ from assumptions.
"A combination charge is also in line with the general move away from mono-charge structures in the pensions market today."
The Trades Union Congress says the charging structure struck "exactly the right balance" and would ensure there was "no unjustified subsidy" from taxpayers.
TUC General Secretary Brendan Barber says: "A contribution charge provides a sensible initial income stream that will help defray start-up costs. In the longer term savers will have the stability of an industry-standard annual management charge, set at an extremely competitive level.
"There are inevitable start-up costs for a major project such as NEST. The staging and phasing of contributions and auto-enrolment - over a longer period than we would like - will delay the full flow of scheme income.
"While this has made some upfront charging inevitable, the aim should be to reduce this as soon as possible. The scheme's initial savers should not have to bear the costs of the government's decision to put off the date when members and employers make full contributions."
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