Dependent to some extent on the outcome of the election, more than a million employers will be affected by the proposed pension reforms requiring them to establish a qualifying workplace pension scheme for employees.
In theory, between October 2012 and September 2016, we will see the advent of a million new private-sector workplace pension schemes (really ?).
Those million employers will have in the region of 11 million eligible employees (not much paperwork there then). In theory, it seems highly likely that hundreds of thousands of those employers and more than half of their employees will benefit from using the national employment savings trust (NEST) default scheme.
In the curent economic environment, the scheme that employers choose is highly likely to be chosen on cost and the main "selling point" of the NEST scheme will be its low-cost approach. The original idea being that the NEST scheme would operate on an annual charge of just 0.3 per cent (how that can be done was never really covered), an extremely low level compared with many existing schemes and even lower than stakeholder.
However, even though the charging structure recently announced for NEST scheme is the 0.3 per cent anticipated, this is in addition to a 2 per cent charge on all contributions made by employees, employers and the taxman. This is to cover the cost of establishing the scheme and paying back the Government loans made in the early years.
It is not clear for how many years the 2 per cent charge will apply but it could be for as long as 10 or 20 years. All of a sudden this is no longer the "cheap as chips" pension scheme many will have been expecting. For many it will almost certainly be more expensive than Stakeholder, and probably more expensive than many of the new generation of personal pensions.
The overall cost will depend on how many people join, how much they contribute towards their pensions and how long thery are members for. Most importantly, the real cost of the scheme for the employees who join it in its early years will never be known for certain in advance. The expectation is that over the long term the cost for future employees joining the scheme could well end up being as low as an annual charge of 0.3 per cent but that will effectively have been paid for by all the early members (Isn't that the same problem with National Insurance ?). In theory, it could well make sense to make other arrangements in the early years and transfer into NEST when the charges fall at some, unspecified, date in the future.