We have been looking for employers who have received their 12-month letters from The Pensions Regulator, but the first reaction we are hearing is that they intend to use NEST and they are not interested in an alternative. Now, I appreciate that as an IFA, I have a vested interest in spreading doubt and uncertainty here, but please suspend judgement until I have given you some verifiable information.
NEST, (the National Employment Savings Trust), was set up by the government as the pension provider of last resort, so no matter how little you intend to pay in and how few employees you have, they have to accept your scheme. Remember, The Pensions Regulator is not interested in excuses – get a scheme set up in time or else!
The bigger, commercial players in this market, like Royal London, Standard Life and the Prudential are being very fussy about who they will accept. The terms they will offer will vary, with terse dismissals if you have not started looking soon enough or the monthly premium is not enough to get them out of bed. Some providers are charging the employer a regular monthly fee just to run the scheme, but please understand that these “grown-up” schemes have many more options, funds and features than the alternatives.
There are other providers who will try to offer terms to all comers and although they all have different characteristics to the “grown-up” schemes, they have the big advantage of being cheaper to operate for the members than NEST for the foreseeable future.
NEST also is not very user-friendly; as an employer you will get minimal handholding, so getting everything working seamlessly can be hard work. In my humble experience as an adviser, the back offices for the alternatives are easier to deal with than NEST and there are more resources available to employers in getting the payroll and pension schemes to work together.
As an employer, you need to decide where your priorities lie. If they are something like:
o Minimise additional costs to the business for pensions, in terms of cash, additional labour, non-productive time and angst.
o Maximise the pension actually retained by the employees
Then avoiding NEST should be a pre-requisite. NEST charges 0.3% on funds held and 1.3% on all premiums received, where the basic alternatives are a flat 0.5% for one and 0.3% and £1.50 per month for another. Even the “grown-up” schemes will have at least one fund that charges no more than 0.75% overall, and often much less.
NEST is the only pension scheme allowed to charge more than 0.75% for a basic fund. I would suggest that this fact alone should be enough to encourage you to move away from NEST as a pension solution. (http://www.nestpensions.org.uk/schemeweb/NestWeb/public/whatisnest/contents/nests-charges.html)
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The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.