The Government yesterday announced the charges NEST (National Employment Savings Trust) is expected to make. In line with the recommendation of the Pensions Commission*, a 0.3% annual management charge (AMC) will be levied on each member's fund. In addition, however, a charge of "around 2%" on contributions will be applied, to help defray the costs of establishing the scheme.

* The Pensions Commission report, published in November 2005, recommended an AMC of 0.3% (see Chapter 10 page 44: separate Chapters of the report are available from the BBC website). At the time this was widely regarded by the industry as extremely challenging - but then, so was a 1% charge when first proposed for stakeholder: it soon became a norm.

Until NEST is fully established, which might take twenty years, it faces an inevitable gap between costs and revenues. The Government is going to make a loan to NEST to cover those costs, ensuring it is delivered at no overall cost to the taxpayer. The idea is that revenue from the 2% contribution charge will pay off the loan, and when that goal is achieved, the plan is to drop the charge.