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.
HOW?
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?
WHY?
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
WHEN?
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