The future of NEST

crows nest

NEST – strategically poised


NEST has called for people and organisations to comment on what it should do when the initial surge of auto-enrolment is over. We have already seen rivals to Sage suggesting it remain circumscribed to its current limited function.

We do not agree. NEST has a responsibility to be a force for good and to drive up standards. In Pension PlayPen’s response to NEST’s call for evidence, we argue that NEST should take a lead in developing a default means to spend our retirement pots, should act as a “DC PPF” for failing DC schemes and should continue to push the boundaries of technological innovation.

But while we like and admire NEST as an organisation, we are troubled by its seeming insouciance to its financial responsibilities to the tax-payer. We don’t like the subtle change in emphasis within NEST’s financial view of itself. NEST owes us money and should be held to account on how it intends to return this money to us. It should not be allowed to live with a £400m hand-out and then compete as if this wasn’t a debt to be repaid.

We suspect that by 2019, Britain will be free of EU competition law and NEST may feel free to compete as if it were debt-free. NOT IF WE HAVE ANYTHING TO DO WITH IT.

We call for NEST to publish, with any strategic plan, financial projections that tell us when we get our money back- and how!


This is the Pension PlayPen’s response (typos and all) to NEST. See what you think and if you have anything to say, put your comments in the boxes below. NEST reads this blog and will read your comments!



Response to NEST; Evolving for the future

Pension PlayPen; July 2016

Nest has asked us for our thought on how it should face up to the future; we note its current role


Specifically, it has asked us to comment on whether these are the right principle to help Government weigh up proposals for changing NEST’s policy framework


Broadly the two map but we note that going forward “self-financing in the long-term” has morphed into “stable over the long term”. The phrase “delivered at nil-cost to taxpayers” has disappeared from the proposed policy framework.




NEST has a lot of tax-payer’s money to pay back- at least £400m, this is around 50% of its total assets and it is not going to deliver NEST at nil-cost to tax-payers.

We suggest that “self-financing in the long-term- low cost, delivered at nil-cost to taxpayers remains in NEST’s policy framework going forward.


nest heating

Turning up the heat!


NEST as a Pension


Much of the call for evidence concerns itself with decumulation. We see the job of a pension scheme as being to help people build up rights to money in retirement and to help them exercise those rights.

Most people see a pension as a way of deferring pay through saving now to spend later. Most people want a simple way to spend their retirement savings in a planned way, just as they save in a planned way.

People want a default spending plan, as they have a default saving plan and that is exactly what NEST should be aiming to give them.

Most people do not want UFPLS or any other form of self-managed drawdown, they want their workplace pension to give them a pension, without the need for advice, worry or attention. Most people want to get on with the second half of their lives without having to make financial advisers out of themselves- let alone CIOs!

nest offset

NEST Scheme Pensions

It is with great sadness that we cannot currently talk about using the freedoms of CDC to pay people income for life in retirement. The Government called for innovation from the financial services industry in 2014-15 and we responded, helping to draft a way for organisations like NEST to pay lifetime incomes without the guarantees surrounding annuities and Defined Benefit Pension Schemes.

It seems that the DWP now wants us to give more feedback on what people want in retirement. We will give them the feedback that we have given before. In recent research of ordinary UK citizens, Aon found that 68% of people wanted a regular stream of income paid to them for as long as they lived. People wanted an annuity with better rates, property rights and they wanted it paid from their pension fund without an insurance company policy.

People also wanted everything to be guaranteed!

Clearly not all of this is possible at the same time but it seems clear that the part of the equation that is most vexatious is the guarantee.

We would like to see NEST including in its policy framework

“A provider of pensions” – NEST will provide non-guaranteed lifetime incomes to all members wishing to use this facility. This shall be the default facility and will be managed using NEST’s best endeavours”. NEST will not guarantee pension rates but will seek to manage the funds of those who participate in this default decumulation arrangement, equitably and efficiently according to prudent actuarial principles”.


The Changing Pension Landscape

nest future retirment

The paper exhaustively rehearses many of the changes we have seen in UK pensions over the past 15 years. However, it ignores one of the most important, the rise of the empowered consumer demanding better value for money.

Workplace pension providers are keen to talk about VFM in an abstract way, but not so keen to talk about it as it applies to their activities.

We see transparency as key to the provision of value for money and that starts at home. NEST must be clear and transparent about their means to repay the public the £400m + it currently has. This means detailing how it will bring its costs down over time and how it will increase its revenues.


In terms of bringing costs down, we are pleased with the way that NEST has invested in technology, especially API technology which will massively increase operational efficiency over time. We have visited NEST’s offices in Peterborough and noted with approval the culture of digital efficiency, the organisation of the call centres and the attention to providing customer support at an appropriate level.

We hope that the same is happening in terms of NEST’s investment operations but have little way of telling, NEST does not disclose the terms on which it purchases services from third party fund managers and investment administrators. We think it should.

We want to see a clear financial plan for NEST that is auditable by its public and holds NEST to account for the public money it has and is spending. We want to see how well it is negotiating deals and we don’t want any more of the confidentiality agreements behind which it hides its dealings with third parties.

nest contributions

Extending access

One thing we have learned from stakeholder pensions is that just because a good pension exists, does not mean people will save into it. NEST may be a very good pension scheme but it will not compete with SIPPs for wealth nor ISAs for short term saving. It is what it is, a good workplace pension.

Where we see demand for NEST is as a consolidator for failing workplace pensions and for redundant occupational DC schemes. NEST could and should develop a bulk transfer facility and advertise itself as a means to rationalise failing schemes (for whatever reason).

It could become the DC equivalent of the PPF.

HElen dean nest

Helen Dean- NEST CEO



Pension Dashboard and Pot follows member

We also see NEST as a consolidator for those using their pension dashboards to manage their legacy pensions into a single pot. This will be NEST’s chief revenue stream outside of regular workplace savings.

NEST could and should, post April 2017, get on with becoming an aggregator – as Autolycus calls himself in the Winter’s Tale “a snapper up of unconsidered trifles”.











About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to The future of NEST

  1. Bob Ward says:

    Here, here

    Bob Ward

  2. Phil Castle says:

    You didn’t comment on whether they should be able to transfer OUT in future. Other than that I pretty much agree with what you have said Henry.
    There are arguments for and against allowing transfers out. Not allowing transfers out protects from attempted pension liberation and scams, but limits choice. Which way do you fall on this Henry?

  3. Mike Lacey says:

    One of my reasons for not recommending NEST is the impact of Inheritance Tax on Death benefits. Because there is zero discretion available, it forms part of the Estate of the deceased and so is in all likelihood effectively taxed at 40%. Having no discretion can also result in an unequitable outcome – if a member had been through an acrimonious Divorce, remarried and then had children, the funds will be paid to the person originally nominated. This simply isn’t fair.

  4. henry tapper says:

    Very interesting points Mike – is there no way to create a discretionary nomination?

  5. Mike Lacey says:

    I assume that the reason NEST don’t want to allow that – and I stress, I assume – is that doing so would require additional intervention from NEST. This might not sit easily with their mass market offer. More details on page three of this press release from three years back…,PDF.pdf

  6. henry tapper says:

    As in…

    Our approach means we can pay benefits quickly and be
    sure the money’s going where the member wanted it to
    go. If a member dies without telling us where they want
    their funds to go we’ll usually pay them to the member’s
    personal representative. From there the money will be
    distributed in line with the member’s will or to their
    family in accordance with intestacy law. Due to the
    way we pay death benefits they form part of a
    member’s estate and are potentially subject to
    inheritance tax if the member’s estate is worth
    more than £325,000.

    It’s important to point out that NEST -even when the restrictions get taken off next year, is not going to work well as an aggregating service for the asset rich – unless NEST moves to providing discretionary benefits.

    Really good spot Mike – thanks

  7. Mike Lacey says:

    Thats the one. And thank you Henry.

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