This week’s announcement that the timetable for auto-enrolment is being shunted back another year is bad news for those of us who have worked on project plans over the past couple of years but its a flippin’ disaster for the new workplace pension providers – NOW, NEST and the People’s Pensions, all of whose business models were built around the “change them over my dead body” promises of the DWP.
Political risk is part and parcel of supplying to the Government so you have to have limited sympathy for the major outsourcers whose pricing factors in the likelihood of slippage in policy timetables,
However, there is an infrastructure surrounding pensions that stretches from one band IFAs through to the likes of Mercer ,TW and Aon who have an urgent job to do keeping the legacy of DB solvent and making the best of the bad job that is “today’s DC“.
I wonder whether the decision taken in Whitehall to delay NEST, properly considered the bonfire of reports and project plans which will metaphorically be firing the furnaces this weekend.
Without the small print that will be arriving in January, we have no idea of the secondary consequences of the delays announced so far. It now looks likely that the phasing of the full contribution scale will be concertinered or even abandoned. Alternatively we may see the completion of the phasing stretch through to 2017 which would set some interesting hares running at NEST.
NEST is currently hamstrung by concessions to the ABI which stop it aggregating small pots, accepting large contributions or allowing members to move their savings out of it. This changes in 2017 when these taps can be turned on. Steve Webb‘s policy agenda is currently focussed on small pot sweep-ups that would ensure people with lots of little funds get their pension paid from one big fund.
NEST is effectively on a soft launch for the next five years and cannot be expected to be properly used by any employer with their wits about it till it is put on a level playing field with its competitors. It will be used by witless employers, employers with a political agenda and employers with appalling pension demographics as a dumping ground for the staff they didn’t want to pension. This is not the same thing as saying NEST will make a difference.
Post 2017, it’s possible to see NEST being a genuinely effective pension alternative and indeed it will be the home for the hundreds and thousands of small employers who never wanted to be involved in their staff’s pensions who will eventually be staged under auto-enrolment.
Increasingly my thoughts turn to 2017 as the crucial staging point for the Government’s auto-enrolment reforms. When you just tout dates around (As we’ve been doing all week) the abstract notion of 2017 is as meaningless as 1017 or 3017. However it’s worth considering just how far 2017 is away in real terms.
By then the technology of 2011 will be as archaic as that of 2006 today. We will be two years into a new parliament. It would be nice to think that Steve Webb would still be the pension minister but past performance suggests otherwise.
Most importantly, the economic climate in which we operate is likely to be hugely different from todays. The seismic events playing out on the continent and the shift in the tectonic plates that grind between the new and old economies of the USA and China, suggest that whatever decisions are taken in 2017, will be affected by tactical factors quite different from those of today.
NEST was designed to be built on solid foundations – the £600m loan from the taxpayer to get it going represents a very public investment. Of course its only £0.6bn which in the context of other centralised fiascos (the NHS computer and identity cards spring to mind) it’s not that much to lose.
Despite all the noise, it still has only nugatory cashflow. If my analysis correct, it will take very little money between now and 2017. If the Government releases it from its current shackles in 2017 (at the risk of it cannibalising existing savings) , NEST could be a force to be reckoned with but I fear that it will by then look as out of date as the stakeholder pensions I set up five or ten years ago.
In the meantime we need to ask some serious questions about what is going on in Borough High Street where NEST’s sales team sits. I haven’t seen any interim reports but the last time I looked NEST had already burned £280m of its loan. Are we to let it continue to burn through out money while it waits to be relevent or should we ask the tough but obvious question.
Should we mothball NEST and brush it off in 2017? Maybe a little drastic but we certainly need to scale back the amount it is spending both in events and it its payroll.