NEST Corp published its accounts yesterday. I doubt that Laurence Churchill , Tim Jones and their 140 members of staff will want us to dwell too long on the details.

With a Commons Select Committee now reviewing both Auto-Enrolment and NEST, NEST Corp will be keen to get some members and prove that it is more than a maw for public funds.

This from the accompanying press release

During the year Nest received grant-in-aid funding of £1.2m and drew down net loan funding of £78.9m. At 31 March 2011, the balance on the loans from DWP was £120m.

By the end of the tax year, Nest had made advance payments totalling £27.6m to Tata Consultancy Services for setting up the scheme administration services and the corporation held a cash balance of £22.9m at to meet anticipated forthcoming payments.

The expenditure dwarfs funds under management for all but a handful of occupational DC arrangements in the UK.

But the only pensions that NEST has set up have been for their 141 staff, 120 of whom are in the NEST Group Personal Pension which NEST funds to 8% of salary at a cost to itself of £600,000 p.a. – (the costs of funding secondees’ public sector pension costs apears to be on top of of this).

NEST’s solvency is dependent on it borrowing from the tax payer .

During the year, we signed a loan agreement with DWP that provides assurance that future funding will be provided to NEST Corporation until income from scheme charges is enough to meet future costs and settle the loan liability.

For those not in the know, the loan will be repaid by members at the rate of 1.8% of the amount they and their employers contribute into NEST.

This is generally known. What is not so well known is that the interest on the loan (currently about 7.5%) is being rolled into NEST’s indebtedness. However , NEST has been offered a preferential rate of interest payable as and when it receives its first contribution. The good news , NEST tells me is that when that first contribution arrives, NEST will not only get a lower loan rate going forward but a rebate of the interest paid historically- which is good news for future members.

Following the European Commission’s ruling in July 2010, a Public Service Obligation Offset Payment will be receivable from DWP which will have the effect of reducing the cost of servicing the loan to the Government cost of borrowing. This offset payment will become receivable on the first loan interest payment date following the practical commencement of the public service duty when NEST takes in its first members.

The saving to NEST’s future members following the payment of first contributions will be 3% of £120m or nearly £3.6m per year. It looks like there’s a multi-million pound rebate for interest charged in the past.

But taking away the issue of interest , of much more import is the scale of the debt already incurred. IT’s going to take over £6bn of contributions just to repay the principal and with interest on top the time horizon for the removal of the 1.8% contribution charges seems pretty distant.

Related articles

• Worrying times for NEST (henrytapper.com)
• Buy now while IFAs last? (henrytapper.com)
• “Buying a Retirement Income” from an RIP (henrytapper.com)
• New Nest pension ruffles workers’ feathers (independent.co.uk)
• New national pension scheme gets the go-ahead (confused.com)
• The Empty Nest (amarquette333.wordpress.com)
• The workplace pension changes that affect you (confused.com)
• New govt pension scheme could be risky for savers (confused.com)
• Robert Peston (bbc.co.uk)
• CDC pensions could happen – if we put our minds to it. (henrytapper.com)