The publication of NEST’s 2015 report and accounts yesterday has some good news and some not such good news.
The good news is that nothing seriously went wrong last year, there are now some 14,000 employers using NEST for all or part of their pension provision and that assets under NEST management have passed £400m, quadrupling in the period March to March 2014-15.
The not so good news is that the DWP loan drawn down by NEST has increased by a third over the period to £387, Add to this the £13m in grants from the DWP to meet the public service obligation that NEST has and you get a £400m subisdy.
NEST owns about £60m in assets, we therefore own £335m of NEST (taxpayer’s equity).
For the first time, NEST has more assets under management than public debt – (well it’s a start!).
How we are going to get our money back is an interesting question. Part of the increased debt was because of £21m of interest payments paid on the accrued debt to date. Total income generated by the AMC and contribution charge on members funds was around £5m meaning that NEST is currently only generating a quarter of the income needed to cover its interest payments (in this benign climate).
Any thought of repayment of the principle will have to wait. With interest rates set to increase – who knows how long that wait might be,
VFM for tax-payer
So clearly the tax-payer is in it for the long-term and has every right to be asking what they are getting for their money (that they might not get for free from the rest of the market).
Most of the 80 pages of the report and accounts sets out to prove we are getting value for money and there’s no doubt that NEST are setting standards in many of the areas it is working in.
But there remain questions.
- It has not adopted the Master Trust Assurance Framework- why not?
- It has not adopted the PAPDIS or PAPDIS 1 data standard -why not?
- The TCS administration contract is five years old, what will the new contract say?
- The investment review (especially of the reverse lifestyling for younger members, is likely to require an embarrassing volte-face (in the light of actual opt-out experience)
- The investment administration contract with State Street remains in place – despite reputational damage to that custodian from its fraudulent activities.
As a general observation, I’d say that for an organisation as subsidised as NEST is, the tax-payer could and should expect more – especially in terms of collaboration.
NEST should be apart of – not apart from – the auto-enrolment community. By ignoring the master trust assurance framework and not signing up to PAPDIS, it is showing itself aloof. You can be aloof as much as you like- just do it with your own money.
New CEO – new broom?
NEST now has a new CEO, Helen Dean, who has been responsible for many of NEST’s successes. I wish her well and expect that she will be less aggressive and more collaborative in her positioning of NEST than her predecessor.
Tim Jones leaves with a job pretty well done but with my questions unanswered, he has been overall a great CEO but the next five year’s of NEST’s work need a differing approach.
Of course the numbers will catch up, it’s very possible that assets will quadruple again next year and that the loan interest will at least be covered. Staff costs have actually fallen in 2014-15 and there is no reason to suppose that NEST’s fixed costs will increase overall.
Nevertheless, the new business strain of on-boarding a substantial chunk of the 1.2m employers in the initial staging period, still to embark on auto-enrolment is a serious risk and could result in some major costs (if the technology doesn’t work).
Which is why NEST should be pleased that there other excellent pensions to share the load. NEST and the country could have faced 2016 pretty well on its own, instead it faces healthy competition from Peoples, NOW, L&G ,Standard Life, Aviva, Royal London, Scottish Widows, Aegon and a host of wannabe master-trusts all snapping at its heels.
Let’s hope that NEST will start collaborating rather than competing with the market, that is the only way that we will make it through to 2018 and beyond without casualties.
Ironically , I think it is the best hope we have of seeing our money back.