- guardian.co.uk, Sunday 18 April 2010 20.01 BST
Employers fear a government-sponsored pension scheme covering up to 10 million workers will prove a huge turn-off and be rejected by many of the people it was designed to support.
The CBI warned today the National Employment Savings Trust (Nest) could be declared a flop when it is introduced in 2012 because it is complicated and includes up-front charges that will make it expensive for workers who only join for a short period. Millions of savers could "baulk" at the costs of joining the scheme, leaving only the better paid to benefit from the new occupational scheme when they retire, it said.
The business group supported the idea of encouraging a wider take-up of pensions among millions of workers in private firms, but warned of potential problems over the move to automatically enrol staff.
The scheme could be "undermined" when savers realised that putting money into the trust would leave them worse off for over a decade when compared with saving into other pension schemes.
When ministers agreed the scheme they refused to fund initial management costs for each new joiner to the scheme. The decision to make Nest self-financing forced its board to shift the levy to each employee when they join.
Nest members will initially be charged 2% of their first year's contribution when they pay money into the scheme, which is meant to cover the set-up costs, plus a 0.3% annual management charge.
Nest argued the scheme would remain one of the cheapest UK pension schemes and allowed employers currently without a pension to automatically enrol workers without paying set-up costs themselves.
From 2012 employers will be forced to auto-enrol workers in an existing pension plan or the Nest scheme. The scheme will be rolled out over several years until all employees are covered.
Until recently unions and employers groups supported the scheme in principle along with the three main political parties. However, the decision to charge an up-front fee for joining the scheme has divided opinion. An incoming government will struggle to offer subsidies to offset up-front charges. Proposals to spread the costs over several years would raise the annual charge beyond 0.3%, which could also discourage new joiners.
John Cridland, deputy director general of the CBI, said: "Nest is a key part of extending the offer of a good pension to everyone in the private sector. The scheme is meant to be low-cost and easy to understand, so that it spurs people to start saving, but the risk is that many staff will think they are getting a raw deal, and will quit the Nest scheme.
"The next government needs to revisit the structure of these fees. We must make it easier for the low-paid to save by smoothing the cost, instead of front-loading it. The pensions timebomb is ticking loudly, and more people must be encouraged to save."
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