Saga is warning older workers about the potential dangers of auto enrolment to the NEST scheme.

The two per cent up front charge will hit the over 50’s hard, as well as those who cannot contribute over many years, says Dr Ros Altmann, Saga’s director-general.

“We believe that the decision to levy an initial charge of two per cent on NEST pension contributions is unwise and unfair. Government’s intention to recoup the set-up costs will unfairly penalise those who contribute in the early years and also damage pension outcomes for many.”

There has also been some criticism that the scheme could lead to employees receiving lower pensions as employers start to pay the minimum levels of NEST contributions

Dr Altmann said: “From 2012, employers will have to contribute just one per cent, then rising to two per cent and then to three per cent of earnings by 2017. In fact, employers currently running staff pension schemes are actually contributing an average of around six per cent of salary at the moment. This means that employers could decide to cut their contributions significantly, leaving workers currently in an employer’s scheme with lower pensions in future as a result of the low minimum suggested by NEST.”

Dr Altmann has also raised concerns that NEST pensions should be more flexible and perhaps have an ISA element to them. This would give small amounts of money that have to be locked away for decades a better chance to grow.

The Department for Work & Pensions said in its report, ‘Making auto enrolment work’: “Over 95 per cent can expect to receive more than £1 plus inflation for every £1 saved and just over 80 per cent can expect to receive more than £1.75 plus inflation for every £1 saved.”

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