The press is not full of the NAO’s report on auto-enrolment, why should it be? There is no story other than the good news that auto-enrolment is working as predicted by the DWP.
Specifically it sets out a number of things that the DWP did right. This should not just be instructive to Government but to many private sector organisations setting out on projects with national significance
The DWP set clear aims for the project – which has allowed it to be flexible in its approach (consulting widely and implementing change) while protecting their core objectives.
The Department, The Pensions Regulator and NEST have identified and tested critical assumptions about behaviour – I’d agree with that, from the high level work by the DWP (including Workie!) to the very detailed insights in NEST insight, the Government have really got to grips with the mechanics of auto-enrolment. No better evidence is the Pension Regulator’s section of the auto-enrolment website.
The automatic enrolment programme team has been small and stable; I had this conversation with Charlotte Clark last year. She played down her role in this but I won’t. She is the rock around which all else has been built and her return to the DWP was of immense help to the auto-enrolment project. I’d also mention the importance of tPR’s contribution. Charles Counsell has built a team around him who understand business and understand payroll. They enforce sensitively and effectively. We should treasure the team that Charles has assembled around him.
The Department has developed automatic enrolment over a long period and introduced it in stages ; the plan has worked and though the project has sometimes flown by the seat of its pants, it is now ready to take on the really huge logistical challenges of 2016 onwards. I can think of no better implementation plan of a major Government project than that devised and delivered by DWP/TPR so far.
A word about NEST
The main body of the report contains some useful insights into the market for pension providers and acknowledges that the market has changed and is likely to continue to change,
It makes specific mention of the impact of these changes on NEST
Against this backdrop, the Department and NEST work together on an ongoing basis to review NEST’s financial position and the long-term sustainability of the current funding arrangement, including the size of its loan facility and repayment period. The Department and NEST are committed to ensuring the original objective of introducing NEST as a low-cost, quality workplace pension scheme that can be delivered at no direct cost to the taxpayer.
The success of auto-enrolment has attracted new providers and it has kept existing providers like Aviva, L&G, Scottish Widows, Aegon, Standard Life and Royal London in the game when most had expected them to pull up the drawbridge on new business.
The table below, taken from the main body of the report demonstrates that the insurers have taken over 1/3 of the initial market and that NEST is only one of several providers offering a “product to all”
My understanding is that NEST is not as asset rich as it was projected to be and this is because it is competing for business at a time when many considered it would have the market to itself.
A competitive market is a good thing, it improves consumer outcomes and improves employer’s engagement with workplace pensions in a way that “NEST or nothing” wouldn’t have.
But it means that NEST is now looking less likely to repay that loan any time this century!
Unless a way can be found to reduce its cost-base (unlikely) or increase its revenues (possible) NEST will be a direct cost to the tax-payer.;
I’d urge the NAO to press hard here. The market is changing as I write as NEST’s rivals implement fees to employers to provide the support that NEST provides for free. It is not right that NEST claims to be at no cost to the tax-payer, introduces no remedial plan to get its finances back on track and in the meantime picks up business because it is free to use.
The sooner NEST starts charging for its support or reduces its support to reduce its cost basis – the better. At the moment it is distorting a working market.
A clean bill of health?
Having read (most of) the report, I feel comfortable and confident to be one of the contactors the Government is using to implement the auto-enrolment project. Many of the suggestions in the body of the report (including improving the links to HMRCs RTI reporting to improve enforcement) have been flagged on this blog.
I agree that the employer declaration of compliance is a little weak and that more needs to be done to ensure that that is a proper statement of fact – rather than intent!
The revised estimate of opt-outs (down from 28 to 8-14% seems realistic. It is something for SMEs to plan around.
This should be my least read blog of recent weeks, since (other than repeating what I have already said about NEST), I have nothing to add.
It remains only for me to offer the DWP, tPR and NEST a round of applause at the interval and hope that the second half of the show is as good as the first!
The final chart – again from the main report- should sober us up after half-term drinks – just look at the blue line!
I am off this morning to speak at a conference on retirement freedoms and will be spending this afternoon with a notable journalist discussing how we will spend this money we are saving.
I have written on a little card these words from the NAO’s conclusion.
The DWP will need to ensure that more widespread enrolment translates into higher retirement incomes as it tackles remaining questions about the design of auto-enrolment, wider reforms and market development.