NEST, NOW and Peoples Pension price comparison

NEST, NOW and Peoples Pension price comparison

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Listened to the AE webinar for advisers yesterday and it was suggested that employers document the decision making process when choosing a pension as employees could challenge the decision at some point in the future as not being in their best interests.

One big aspect is charges, and from my quick calcs on a minimum contribution on a 20k salary over 25 years this is what I found.

NEST £2114

NOW £1877

Peoples £2378

That is provided nothing changes of course and in 25 years we still have the 1.8% NEST surcharge which should be gone by then. I have also not factored in anything for the growth of the fund.

Has anyone else got any thoughts on this or what else can be used to compare these three?

Replies (18)

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By bernard michael
15th Jul 2015 09:53

In 25 years I'll be long gone

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By Andy Reeves
17th Jul 2015 12:53

Now will be gome soon

I understood that NOW were run by an overseas (Danish?) company and, as they are in it for profit, are likely to sell on what they can to one of the insurance companies who will of course increase their charges.

I think the legislation simply requires employers to OFFER a workplace pension (in a qualifying scheme, and puts no further responsibility on them regarding the scheme returns. Employers (mostly) are not financial experts and can't be expected to trawl the market to get better deals for employees.

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By SteveB@LPAES
17th Jul 2015 14:05

Simple comparison....
All three have different ways of providing tax relief for members which means that some low paid employees will miss out on tax relief on their contributions if the wrong method/provider is chosenOne of the three will not accept transfers in from other pension providers and will not provider transfers from them to another provider.(currently)One of the three has an overall cap of approx one tenth of the normal current annual allowance on each members contributions every year which cannot be breached (currently).One of these three has a different approach to the way that tax is applied to death benefits if a member dies before vesting their funds.One of the three has only one investment fund for all members regardless of age, attitude or religion.One is run for profit whilst two are not.One one uses target dated investment funds tailored to a members specific state retirement age which means that benefits from this provider can be syncronised with the taking of any state pension available without any input form the member.

 

None of the above has anything to do with investment returns or charges but are nonetheless relevant to anyone who is selecting a scheme for themselves or for their clients. Employers are not responsible for investment performance but I believe some kind of "reason why I choose this one..." might be useful in years to come.... when said employee's dependents are trying to claim back the tax they may have suffered when the member dies unexpectedly. Maybe an ex employee will be trying to claim missed tax relief from the employer who chose a scheme which has disadvantaged them.

Once the phone stops ringing in a couple of years asking you whether you have claimed your PPI refund maybe the automated message will say something like.."Have you missed out on money from your employer/accountant who set up a pension scheme without realising you were disadvantaged"....or maybe I am listening to the wrong lawyers who are currently talking about exactly this area???

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By kirstiej
17th Jul 2015 14:19

When you start speculating on things like future performance, doesn't that take you into the territory of giving investment advice?  I would expect an employer to choose a pension that meets the requriements for auto enrolment, but it's not realistic to expect your average small business owner to start comparing the long term effect of pension charges.

 

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By kirstiej
17th Jul 2015 14:23

The difference between PPI and auto enrolment is that PPI was never mandatory and there was never a PPI regulator checking that PPI schemes met their requirements.

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By SteveB@LPAES
17th Jul 2015 14:28

PPI....

Some banks seem to have thought it was....

AE won't be the issue, you are right the legislation is the same for all concerned. Choosing the wrong scheme because of its explicit mechanics may be an issue when we are 5-10 years on the other side of 2017.

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blue sheep
By NH
17th Jul 2015 16:42

@steveb
Would it not have been more helpful and more in the spirit of the forum to have said which one of the three does what, rather than one does this and one does that?

Whilst I agree there is potential for litigation I think the question will be whether or not an employer should have been expected to know, it is not mandatory for an employer to seek expensive advice.

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Locutus of Borg
By Locutus
17th Jul 2015 17:09

@SteveB

You set out some of the things to consider for three AE companies.

However, what might be in the interests of one employee, might not be in the interests of others.  How can an employer possibly be expected to reconcile all of these diverse interests?

It also raises the question of whether the employer is expected to change the scheme every few years, as the profile of the workforce changes when new employees come and go.

 

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Replying to Tax Dragon:
blue sheep
By NH
17th Jul 2015 17:16

ongoing review

Locutus wrote:

You set out some of the things to consider for three AE companies.

However, what might be in the interests of one employee, might not be in the interests of others.  How can an employer possibly be expected to reconcile all of these diverse interests?

It also raises the question of whether the employer is expected to change the scheme every few years, as the profile of the workforce changes when new employees come and go.

 

I asked tpr that question and they said in their view an employer should review the scheme to ensure it is still suitable for the workforce at least once every 3 years

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By petersaxton
17th Jul 2015 22:50

Auto enrolment

must be one of the daftest ideas to come out of government for years.

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Replying to Tax Dragon:
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By John Wheeley
18th Jul 2015 12:59

Auto Enrolment = Backdoor Taxation

Instead of increasing National Insurance to pay State Pensions, just introduce a new tax.

 

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By SteveB@LPAES
20th Jul 2015 09:11

@NH and @ Locutus

NH....my analysis was aimed at pointing out that even by only choosing three of the many possible providers there are many differences that raise their heads.

PI providers are becoming increasingly concerned that businesses they insure are trying to dabble in this area and could potentially get it wrong. More storied of this nature turn up at our door every day when the accountant actually picks up the phone and asks whether they will be covered by providing pension scheme guidance....

Locutus....I agree however by choosing a pension provider who disadvantages some low paid employees against choosing a provider who does not you start to eliminate risk. We can never be risk free by by partnering with someone who will do this for you and your clients at a minimal cost you limit the chances of it coming back to bite you.

Advice does not need to be expensive but it does need to be provided by people who fully understand this market. There are many who do and they sometimes comment in these threads and mostly comment on LinkedIn from what I can see. Maybe the time has come to acknowledge that we need to all collaborate to make AE work rather than argue about who can do someone elses job after three hour homework (a comment from another thread) and helping clients to get it right??

 

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Replying to whitevanman:
blue sheep
By NH
20th Jul 2015 09:41

work together?

<a href="mailto:SteveB@LPAES">SteveB@LPAES</a> wrote:

Maybe the time has come to acknowledge that we need to all collaborate to make AE work rather than argue about who can do someone elses job after three hour homework (a comment from another thread) and helping clients to get it right??

I dont mean this to sound callous but when you say that we need to collaborate what you actually want is some fees.  The fact of the matter is that for 99% of our small business clients there is simply no money to go around.  We are quite able to help them choose a pension scheme, all the steps to consider are out there.  I really dont think the government meant this as a money making excercise for IFAs did it, indeed there is so much information out there on TPR directed at the employer themselves on how to make a decision

I think you will find that small practice accountants are in the best position to advise their clients, and to learn and absorb new legislation to ensure the clients are protected, it is after all what we have been doing every year since who knows when.

There is basically a choice of three and provided the employer has a rationale behind the choice, what more is there that they can do?

We as accountants will have more work to do on an ongoing basis and will have to raise fees accordingly but no client will be willing to pay someone else.

As a final point, you are on a forum called accountingweb - for accountants, that try to help each other.  We are not here to sell services.  I was hoping for a constructive discussion on the merits of each of the three schemes.

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By petersaxton
20th Jul 2015 09:54

What is the point?

There will be rules to follow and most of the time employees will not want deductions to their pay.

Employers risk penalties if they get anything wrong.

Pension companies will charge fees to employers.

Employers will have to pay into these pension funds.

When the few people who stay the course get a pension they will end up with less money than if they put the money in a savings account.

Other than more business for pension fund managers and financial advisers, what are the advantages?

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By SteveB@LPAES
20th Jul 2015 09:58

Choice of three...

Small businesses have a choice of more than three providers who WILL accept them and that is my point.

The three you speak of are working in one way, They are all Master Trusts and by doing this you close off the route of the contract based schemes.

Many accountants are no more capable of telling the difference here than I am of running payroll...but I understand tax because of what I do for a living, I advise clients to seek tax advise from a qualified professional. I work with accountants and they charge my clients fees for their help/advise. It is entirely collaborative as I receive no benefits (financially) from this.

But I keep my clients and they value the referral.

On the topic of the forum...accountingweb started the no-one gets left behind campaign to help accountants. We amongst others support this campaign along with the Friends of AE. The thread asked a question about what other areas we should be considering in addition to charges, this is what I did. I also caveated this with the fact that my list was no exhaustive.

For chapter and verse in this topic I would suggest attendance at one of the many Friends of AE meetings regionally. There you will find some local support which will be willing to help. If you are based in the south west message me privately and I can direct you to your nearest meeting as I run the region for them....as does Rob Lovell ...with me....editor of accounting web  

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By Sam Beedle
20th Jul 2015 12:28

I went with Now: Pensions

I shortlisted these same three schemes for consideration for when our companies starts staging from October 15.

 

I worked out similar calculations to NH and came up with several of the same considerations as SteveB@LAPES.

 

Although my personal preference was to go with The Peoples Pension due to the various investment options. I chose to recommend that our companies go with Now: Pensions. The big decider for me was being the cost to the employee and the ability to transfer in and out with no additional fee’s. We also have several employees who on occasion make additional contributions into their pension that Nest wouldn’t have allowed due to their contributions cap.

 

I agree as accountants we shouldn’t have to start getting into investment advice and the employee can always pay an IFA for that if they want to. On the other hand however an employee will understand regardless of their occupation and skill level the cost to them.

 

I have fully documented my research and will keep this in case we ever do hear from employees later down the line. However as this is a contract change we are choosing to go through a consultation process with staff so I don’t anticipate any issues coming in 10+ years’ time as all the employees will given ample time to voice concerns and seek IFA support now.

 

I will likely review our pension scheme choice in a number of years however as we are currently going through the consultation process and our employees are already unkeen to move from one fund to another. I don’t believe I will be doing this every three years, maybe every 5 – 10.

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By MissAccounting
20th Jul 2015 12:52

Scaremongering

This AE crap is the biggest scaremongering excuse since....RTI!  The number of IFAs Ive seen trying to scare companies out of £1,000 for a review is staggering!

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By SteveB@LPAES
23rd Jul 2015 13:55

Scaremongering

AE can be dealt with for less than £1,000 easily however face to face advice is more expensive.

Any service has different levels of complexity and therefore denotes a higher cost.

AE is complex and therefore many smaller employers/accountants might need additional support.

Seems like a business/risk decision to me.

 

 

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