Selling NEST and auto-enrolment to the pension weary

The issue of fatigue is high on my agenda this morning – especially Regulatory Fatigue. Yesterday the DWP published a host of documents that can be accessed through this link

It dots the “i”s and crosses the “t’s” on a host of issues and is no doubt being scrutinised by lawyers and the technical teams of pension consultancies up and down the land. A blog is not the place to discuss the minutiae of policy; I’ll stick to one of my major questions  of 2012 “should we mothball NEST?”

For many small companies, the timetable for staging auto-enrolment has been pushed back to 2017 or later. As they are the obvious candidates for NEST (the default option for the truly apathetic), this is a big blow for the Boys in the Borough (sadly not a phrase commonly used for the NEST exec).

Most large companies are lining themselves up to stage using either their existing pension plans  or a new arrangement such as the L &G Mastertrust. They are not lining up behind NEST because NEST is too restrictive. It won’t allow transfers in , transfers out and has a restrictive contribution cap which means even NEST’s own staff have to have a second pension to deal with the top-slice of earnings.

Many companies contemplating providing a new DC pension or upgrading their existing offerings are looking to the new master trust providers who grow more numerous by the month. NOW, Supertrust, Blue Sky Pensions , the People’s PEnsion , XPT, Spinnaker and the industry specific schemes such as SHPS and MNOPP are all available and most are available to the entire NEST target customer base.

Worse still (for NEST) these companies are competing without NEST’s encumbrances and with charges at or around the 0.3% + structure offered by NEST.

The quality of NEST’s offering is undoubted. Laurence Churchill talked us through the layers of governance surrounding NEST at the recent OPDU conference. The NEST investment team , admin units, customer service teams and communication specialists are nothing if not robust. But the fact remains, as Laurence was keen to emphasise, that all this infrastructure currently manages but a tiny stream of cash flows and a nugatory amount of money.

This infrastructure has been established at a cost north of £300m (we await the next set of NEST accounts to see how far north). This amount is a debt to the tax-payer repayable to the DWP out of the 1.8% contribution levy. Without contributions it isn’t going to be repaid and the interest will continue to mount. Unless NEST can get some money through the door, the debt will not only mount, it will ratchet as it will also be increasing to cover the wages of the expectant teams ready and willing to take your money, but with no money to take.

This matter is high on the DWP’s agenda. It is why, we suspect, the DWP have been making noises about releasing NEST from its current encumbrances and promoting it as the natural home for the “small pots” we’ve built up over time from jobs we have left .

NEST was always supposed to compete on a level playing field with private sector pension schemes that did not receive a £300m +loan from the DWP (which is why the ABI insisted that it self-funded the debt repayment out of the contribution charge. It is a basic law of business that a company that enters the market with £300m + of debt will struggle to compete with one without such debts. It is a law of business that a business that has as its mono- product, an offering that has its legs tied together, is unlikely to beat its competitors in a sprint or a marathon.

For the private sector to get behind NEST, something’s going to need to happen. The restrictions are going to need to go or NEST is going to have to be made a default mechanism for pension aggregation. If either of these things happen, listen to the howls of indignation from the ABI, the IMA and other private sector interest groups who will rightly point out that this was not the deal they signed up to.

We are slowly working up to the realisation that a public sector pension is not going to be able to compete against private sector alternatives without state intervention in the market. I suspect that those who are looking for solutions will be struggling with this truth as much as I am.

I am yet to be convinced that NEST should be kept open in the meantime. The cost of decommissioning and and recomissioning  NEST may be greater than the cost of keeping it open (think aircraft carriers)  but we should be aware that the cost is there in both scenarios.

I got into a bit of trouble for my last article and got muscled by some NEST heavies who seemed to think I wasn’t onside. Lighten up guys, you are being paid by my taxes and if blogs like mine can’t ask the difficult questions, who can?

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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8 Responses to Selling NEST and auto-enrolment to the pension weary

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