The Pension Regulator has announced it intends to introduce a Directory of workplace pensions. The criteria for inclusion will be that the workplace pension must meet the Quality Standards being introduced from 2015 and that the workplace will be universally available to SMEs and micros going forward.
What is meant by “available ” is not defined. As the following article published in Money Marketing demonstrates, it is becoming practice among workplace pension providers to charge an implementation and sometimes a maintenance cost to the employer for the use of a workplace pension. You can read Sam Broadbent’s article here.
The one notable exception to the rule is NEST (though NOW are assuming a self-imposed public service obligation to follow NEST’s example – for now).
NEST does not charge fees for its services to employers, it just charges them to the tax-payer. It has been some time since I have seen management accounts of NEST and I don’t know the current level of drawdown of its debt to the DWP. I would be very surprised if it is anywhere close to break even and I can’t imagine that its current charging structure will recover debt anytime soon (for projected numbers read on).
But while its rivals either implement or contemplate employer charges, NEST can continue on its way, burning a hole in the tax-payer’s pocket at the tax-payer’s expense.
The Pension Regulator is going to have to consider whether its directory can properly contain anyone but NEST. After all, anyone can set up a master trust, charge an obscene implementation fee for its use, be included on the Directory and just waive its fee when it wants the business. It’s an old trick.
But if the Regulator cottons on and further requires the Directory to only contain workplace pensions which are free to employers at the point of entry and going forward, then- as Money Marketing point out – we may soon have a market of one.
Supporters of NEST will claim that this is as it should be and that the point of enrolling over a million SMEs and Micros was not to introduce choice but to manage the money through a central state control fund. If that is what we as a nation want, I think we should be straight with providers who are competing with NEST and tell them that NEST is going to get special status going forward.
I do not think this is what any political party wants (though I am sure there are some within the DWP and Treasury as seeing the only way of recovering the debt to the DWP (somewhere between £239m* and £650m).
According to the most recent projections (2012-15 NEST business plan), NEST expects to have 2014 revenues of £12m and expenditure of £109m -running costs and £4m capital expenditure this year. In other words it will make an operating loss of around £100
* this is the most recently published level of drawdown (in the 2013 published accounts)
The Payola Regulator?
So if NEST comes out top of the pops in the Pension Regulator’s Directory, then I hope a few people will point that it’s #1 status has been bought at a price that makes payola look like peanuts. (For those not using the link- Payola was a chart-rigging scandal which involved record companies artificially buying a spot on the hit-parade).
The tPR Directory- if not a qualitative directory- will be just a list – a hit parade published by a department with every reason to keep it’s in-house band at number one!
But at least the idea of a Directory gets us to ask the question, “just how competitive is the workplace pension market”.
I would argue that so long as NEST is able to drawdown on its loan and write business at a loss, this is not a true market.
Further market distortion in the pipeline?
Conspiracy theorists will look at NEST’s current “consultation” on “post-retirement options” with some concern. If NEST are listening to Gregg McClymont and his talk of “super-aggregators”, they will be encouraged that there might be a chink of light in the tunnel.
If NEST becomes the aggregator of small mature pension pots and is given the mantle of “aggregator in chief” for the small nations pots, if NEST is funded to set up a system of pension payments that fills the gap between SIPPs and cashing-out, then NEST may have a viable commercial future.
NEST are being very coy about this consultation, Ostensibly it is about getting the public’s ideas for how it should offer the pension freedoms, but it looks very much like a Government consultation in its presentation and I’m more than a little suspicious of it.
Call to political parties to state their post election position on NEST’s finances
Yesterday I asked Gregg McClymont what the plan for NEST was. He was a bit shifty in his response, citing imminent reprisals from Ed Balls if he were to offer his thoughts. We don’t get much from the current Government on how they see NEST being viable.
And so long as we have NEST as a tax-payer toxic market disrupter which is at one moment a public service and another a commercial provider, we will have a distorted market.
We might consider that NEST is the only fruit and all of us peddling choice to SMEs and micros should pack up our e-trestles and go home.
We might point out that without a competitive market, the stress on NEST could be so great that NEST breaks under the strain, the £650m loan drawdown rate is busted and auto-enrolment (for smaller employers) falls apart.
A third way would be for Government to sit down and think through its current strategy towards choice in the workplace, confirm whether it is encouraging choice and then treat commercial providers fairly. That means making sure that NEST’s subsidy is not used to give them preferential status on directories and that NEST is forced to offer its services at the commercial rate.
If I were offering Gregg McClymont advice, I would suggest that he and Ed Balls sit down prior to the issuing of Labour’s pension manifesto and work out what its position is. I would suggest that George Osborne and whoever the conservatives have in mind to take over from Webb do the same.
Finally I would like to see Steve Webb, prior to April 2015 make a clear statement of what the DWP’s own debt recovery plan is for the taxpayer, so those of us involved in advising on workplace pensions, know what is in store both for NEST users and those who have chosen to stay with commercial providers.