A fascinating discussion at the House of Commons yesterday, led by Legal and General’s CEO Nigel Wilson , with Peoples, NEST and a bunch of policy wonks in attendance (oh and Alex Rowson and me talking for practitioners).
L&G have pumped £150m into auto-enrolment so far, which is just over 1/3 of what NEST have spent. I suspect with £8bn under management as a result, they’ll be showing a return on that investment and they’ve certainly got Government smiling on their wider activities. A big tick in the box for L&G then – especially as they’re putting their shareholder capital behind Government infrastructure projects driving the Powerhouse of the North and making housing affordable for those in senior years.
But what of NEST, Zoe Alexander, their new public affairs person, was too new in the job to talk much of their plans. They haven’t got billions, the last time I looked, auto-enrolment had netted them a couple of hundred millions but the number is insignificant compared with their targets.
Don’t forget – the only way NEST are going to repay their £400m +debt is from the 2.5% contribution charge – it doesn’t look like the numbers are stacking up as quickly as they’d hoped and there’s a real danger that they’ll hit their £600m ceiling before they can start paying down.
NEST cannot increase that member charge but they can start charging employers. This is what NOW and Peoples have announced they’re going to do and if NEST give their customers a free ride, the questions “how?” and “why?” spring to mind.
Auto-enrolment is not free. It is expensive for providers to support and even if an employer is using NEST’s digital CONNECT service, there’s a big support bill for staging which is pretty much a fixed cost.
How can NEST afford to take the whole of market (which is the danger if they mis-price their service) and lose on most customers?
And with so much competition in the market, the need for NEST to do this isn’t obvious. NEST is a great product, but it’s only competitive with those of NEST, Peoples , L&G and others. It doesn’t need to use the DWP loan as a marketing budget because the market is working properly.
Nigel Wilson didn’t have to ask these questions, it was obvious to everyone in the room, that employers should be choosing pensions on the long-term advantage of the workplace pension to them and their staff.
NEST can put up their price to employers and I think they will. The question in my mind is
If that when is unexpected , it will create more disruption. What we need to plan for 2016 and beyond is a clear statement from NEST of why they are pricing as they are now, how they can sustain this price and when they are likely to put prices up.
If the answer to “when?” is never, we need to ask a final question
Agree with all you say. It does however raise a question in my mind. How will employer charges impact on what I would call the one person plus apprentice businesses?
The employer is on the radar because of the apprentice is paid through PAYE. The owner probably does not use PAYE for themselves. In many instances the owner will be classed as self employed.
The apprentice will usually be too young to be auto-enrolled and unlikely to opt in. Could this lead to a large number of shell schemes with no members? This could exasperate the problem of providing auto-enrolment solutions to the smallest of businesses.
Hopefully those who are more familiar with the detail of auto-enrolment regulation than myself, may be able to reassure that this will not be the case. But I suspect that when we get to the smallest of employers many unforeseen issues will arise.
However, if we are going to have a large number of shell schemes there will be a large push back from the smallest employers if they have to pay an employer fee for “just in case” scenarios . Worse from UK plc point of view many apprentices could lose their jobs as employers attempt to avoid what will be an additional cost to the business that they did not take into account.
They’ll have an impact, not so much on employers , but on accountants and payroll who will see these fees eroding the fees they can charge. Many accountants have put in place a pre-select default with People’s or NOW and many of those we have spoken to are reviewing these.
What of the ‘pre-select’ options though? Are they fair to Employers who don’t know enough to make an informed decision and therefore assume that the default suggested by a professional adviser is the best fit for them?