The Government has announced that the expected charges for the National Employment Savings Trust (NEST) pension scheme will meet the Pension Commission's ambition to provide a low cost scheme.

The plan, which intends to give millions of people the possibility of saving adequately for their retirement, will carry an anticipated 0.3 per cent annual management charge over the longer term, but to meet the costs of establishing the scheme, an additional charge on contributions of around two per cent will be included in the initial level of charges.

The charges, the Department for Work and Pensions (DWP) said, are comparable to low charges currently paid by members of large occupational schemes, meaning low-to-moderate earners - the target audience for the scheme - will have the opportunity to pay a charge that only higher earners and larger firm employees can generally expect to pay.

However, the DWP admitted that, until NEST is fully established, an 'inevitable gap between costs and revenues' will exist, and the Government has announced that it will make a loan to NEST to cover these costs, meaning a burden is not placed on the taxpayer.

"This is a fair and sensible funding package which delivers the Pensions Commission's vision of a low cost scheme in an affordable way," explained Minister of State for Pensions and the Ageing Society, Angela Eagle. "It balances the needs of members, taxpayers and the interest of the broader pensions industry. Market failure for low and moderate earners means they have not had access to a suitable low cost pension scheme and have not been able to save for their retirement. NEST will put this right."

The charging structure has been welcomed by the Trades Union Congress (TUC), which commented that the announcement strikes the right balance.

"Today is an important milestone on the road to the new pensions settlement due to start in 2012," said Brendan Barber, TUC general secretary. "The supplier contract has been signed and we now know that the charging structure will combine an initial contribution charge and a long-term annual management charge.

"A contribution charge provides a sensible initial income stream that will help defray start-up costs. In the longer term savers will have the stability of an industry-standard annual management charge, set at an extremely competitive level."

Lane Clark & Peacock's (LCP) Mark Folwell commented that while the arrangements have been a long time coming, there are still unanswered questions, which will not become clear until the scheme is up and running. "While the long-term aspiration for the scheme to be financed by an annual management charge of 0.3 per cent is laudable and would result in a competitive scheme, the crucial question is how long the two per cent contribution charge will take to make NEST self-financing. This will depend on how many of the target group are enrolled and stay enrolled. No-one knows the answer to this."

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