“This week we see the pensions again in the headlines for all the wrong reasons with the news of NEST suffering a loss of £1.4 million due to supplier payment being diverted illustrating that everyone has to be alert to the risk of fraud. A salutary lesson for trustees of all schemes to give serious consideration to undertaking effective reviews of controls on a regular basis”
This is one of the kinder comments following NEST’s admission of a “mandate fraud that saw £1.4m paid to a false supplier. Here is a rather more rigorous comment from one of Britain’s leading pension managers
It’s a significant control failure and ought not to be swept under the carpet. Also, as it currently stands, the loss has not been recovered and has been accounted for in the “Balance Sheet” – the statement of taxpayers’ equity. So called, because NEST is still dependent on a loan from the DWP to fund its start up costs.
I’m not hugely persuaded by NEST’s statement that no money has been taken from members’ pots. Maybe not at the moment, but isn’t NEST’s long-term funding wholly dependent on the charges taken from members’ pots? So if the £1.4m is never recovered, then surely it will ultimately borne by members’ pots, as the charges will have to cover this loss.
In order to get it right next time, there has to be a full understanding of what went wrong this time. More so as, in addition to the Audit Committee, Risk Committee and Trustee Board, there are staff employed to manage the risk framework. Despite this, they appear to have been hoodwinked into paying a supplier’s invoices to a bank account not specified by the supplier, but by someone purporting to be the supplier. It doesn’t appear to be a particularly complex form of fraud, but it’s difficult to be certain without full transparency.
There is no doubt that it is a fraud against the tax-payer but specifically against NEST’s membership. The DWP debt is now £239m up £68m from last year’s £171m. The £1.4m lost in the fraud is presumably part of this amount unless it has been ringfenced to be repaid in another way (executive bonus pool?).
So far so bad, I was at NEST yesterday and at the Regulator the day before, in neither meeting was this mentioned, it is clearly an elephant in the room. The fraud happened over 6 months ago and no doubt the stable door has been shut and triple bolted with armed guards accompanying all payments out. It won’t stop the critics, £1.4m may not be as much as 1% of NEST’s debts but it’s more than 10% of its assets (as of July 2013) and this is an opportunity for anyone selling against NEST , to do so with smug certainty that NEST will have no means to retaliate.
Which is why we mustn’t. The time to have had a go at NEST was prior not post the fraud (and boy did this blog have a go at NEST during 2009-12. But the new NEST is doing good things and has a public service obligation to keep auto-enrolment going as and when the private sector withdraws from the AE market. It is our long-stop, our back back office. But it is also an incubator for best practice. Yesterday I was discussing with its CIO ways to improve transaction cost reporting from its suppliers. NEST has the capacity to deliver a standard of governance that be followed not just by other mastertrusts but by the governance groups who control the large insured platforms on which most DC money in the UK sits.
Similarly in terms of communications, employer support through auto-enrolment and at retirement, NEST has the resources to summon experts who can fertilise best practice not just at NEST but throughout the industry. NEST is more than a mastertrust, it is a force for good. A force for good that we are paying for. One that is a common enterprise between those within NEST and those without.
Knocking NEST at this point serves no useful purpose. Indeed it is counter-productive. Just as with the problems that the Regulator and HMRC are facing with Pension Liberation, ultimately we need to regard NEST as part of a common solution and put aside petty aside the petty smugness of those who consider the failure of NEST a business opportunity.
Ultimately, if NEST fails, auto-enrolment fails and if AE fails we have lost, for a generation, the opportunity to genuinely reform Britain’s long-term savings behaviour. For people like me, in their fifties, this may be the best last chance we will have to see the pension system back on its feet.
So please guys, give NEST a break, let them be embarrassed but don’t give them a kicking. Now is not the time.