Half-term report for AE – an excellent start – keep it up!



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.

nao- key factsWhy the document is important is that it is a case study in what good looks like

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”

blue 2

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!

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.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Half-term report for AE – an excellent start – keep it up!

  1. Bob Compton says:

    Congratulations Henry on highlighting the success so far of the DWP AE programme. Having been involved in the many discussions in the lead up to the AE Act and subsequent regulations, I can confirm it was Charlotte Clark’s willingness to listen to seasoned pensions professionals, consider the implications and act appropriately that laid those foundations. She can not be praised highly enough.

    There are only two areas I would be critical of, firstly the DWP regulations were overly prescriptive initially and made implementation difficult, the second is the funding of Nest. As I understood it the DWP effectively loaned £100’s millions to Nest at a “commercial” rate of c 8%. There appeared to be no pressure on PADA /Nest to spend their “loan” prudently, nor for NEST to raise finance from the government on better terms, particularly now as the Government can raise long term funds at a cost of around 2.5%. Thus if as I suspect the original terms are still in place the Government will be making more money out of Nest than so called “greedy commercial banks”.

    However good it is that 75% of the target workforce has been auto enrolled successfully, the biggest challenge has yet to come, and has the potential to go badly off the rails, as micro Employers try to understand which WPP to adopt for their workers, and then try to manage the situation ongoing. The big issue will then be the poor performing WPP contracts or trusts that those employers will be relying on Governance Committees to look after their employees interests, and I just see that has the possibility of becoming a future “PPI” style scandal.

  2. Richard Seaton says:

    Interesting take on it Henry – “The sooner NEST starts charging for its support or reduces its support to reduce its cost basis – the better.”. I can’t see NEST being able to charge a premium, this will of course hit smaller employers hardest, unless it’s a progressive licence fee based on no. assessments. Even then it would effectively be stealth taxing employers that put their faith in the government backed solution. Non-starter as far as I can see.

    As far as reducing it’s support – that would be fairly disastrous if introduced before the raft of small, non-pension-saavy employers start to use it. NEST isn’t the easiest system to use at the best of times and as you may know, has very limited admin support (or input for that matter) when you put it up against the insurers.

    How about…NEST gets more competitive?

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