February, 2025, LONDON –

A taxpayer-funded loan being paid off since 2012 by the government-backed pension provider, Nest, will have cost a member on an average salary almost £1,200 in additional fees by the time it’s due to be paid off (2038), new research from the personal finance comparison site Finder reveals.

Nest, the UK’s largest workplace pension provider with over 13 million members, introduced a “temporary” contribution charge in 2012. This means that any amount a member adds to a pension gets a 1.8% charge taken from it. Anything added by an employer or claimed via tax relief will also face this rate, effectively making this a triple charge. This fee was introduced to help pay back Nest’s set-up costs, including a loan from the DWP (Department of Work and Pensions), which is funded by the taxpayer.

The loan was worth £171 million in 2012 but annual interest and additional borrowing have seen it rocket up to almost £1.2 billion. In the 23/24 financial year, the interest alone owed to the DWP was over £15 million. Nest says the first repayment of just £6 million has been made in the 24/25 financial year.

It was originally due to be fully repaid by 2032, but Finder contacted Nest who confirmed that the current projected repayment date is 2038. However, they also said the projected payback period allows scope for this to run until 2048 and that they will keep this contribution charge “under review” after the DWP loan is finally paid off, with no official end date given.

How much will this extra charge cost UK pension savers?

For an individual saver, this means more years helping to pay off the government loan. Someone on an average salary who has been using Nest as their workplace pension provider since 2012 would have paid £1,168 in extra contribution fees by 2038. If this stretched to 2048, it would be £1,617.

Someone who has earned £100,000 per year since 2012 will have paid £3,510 by 2038 and £4,861 by 2048. Per month, they will be paying £11.25 in contribution charges.

If the fee isn’t scrapped, someone on the average salary would pay £2,066 over their working lifetime, while someone on £100,000 per year would pay £6,211.

George Sweeney DipFA, pensions expert at the personal finance site, Finder, said:

“If the repayment of the government loan was on track, Nest members might be more inclined to tolerate the contribution charge. However, Nest has been taking this fee for 13 years and still owes well over £1 billion to the DWP so there is a long way to go.

“You worry that Nest’s business operation has become dependent on this “temporary” charge and can’t operate without it, which is why they haven’t committed to removing it once the loan is paid back. I wouldn’t be surprised if they kick the can down the road and pay the loan back later than planned because it removes the need for them to be held accountable for getting rid of this once “temporary” contribution charge.

“As a consumer, it’s important to work out what pension provider is best for you, and the complexity of calculating the overall cost of Nest doesn’t help. Nest’s contribution charge is high but the annual management fee (0.3%) is low compared to some other competitors. There are providers out there that are more expensive, but this table shows 3 other schemes that are likely to be cheaper for a lot of people.

“Unfortunately, most employees don’t get to choose their workplace pension provider, so millions of people are stuck with Nest whether they like it or not.”

Methodology:

The analysis of the cost to pension savers from the contribution charge considers multiple scenarios based on Nest’s projected loan repayment dates, including a charge from 2012 to the beginning of 2038, a charge from 2012 to the beginning of 2048 and a scenario if the 1.8% charge is not removed at all. The average salary used is taken from government figures from the House of Commons library.

Although NEST is a Relief at Source pension, the 1.8% charge is deducted on all payments into the pension – employer, employee and tax relief. That means the analysis considers the total charge on everything paid into the pension.

The average salary used is £37,430 as per the latest ONS data.

The £100,000 is used in the research to give an example of what a higher earner would pay in contribution charges. This example assumes that the higher earner is paying the equivalent of an 8% pension contribution on their total net salary (before tax), and the 1.8% charge is applied to this – including employee, employer and tax relief.

Finder contacted Nest for additional information and used information from Nest’s annual reports and Parliament.