The dumbing down of choice
I went to a talk yesterday by a former shadow cabinet minister of state for the DWP. It was under Chatham House rules so I can’t tell you which one – it doesn’t matter which one – it matters that it was a senior politician who is considered brainy.
He talked openly of his admiration for auto-enrolment and the success of NEST. I asked him how an organisation with an operating deficit of c£500m accumulated in 7 years could be considered a success.
It would seem that in his head the success of NEST and auto-enrolment are one, the £500m is a premium paid by the taxpayer to ensure a change in the savings habits of the nation. If this were the case, he could justify that sum, not by its spending – but by its outcomes.
It is not the case.
The true heroes of AE are not in Westminster
This confusion between NEST and auto-enrolment is not helpful – not helpful at all. Auto-enrolment is a means to improve savings rate and democratise the workplace savings process, NEST is one of the reasons it has been a success but NEST is not auto-enrolment.
The politician is not alone in this; I have spoken to senior economic journalist – including the then economics editor of the BBC, who were under the same delusion.
The Government is of course quite happy it be perpetuated. NEST is the Government’s scheme, Auto-Enrolment is a Government policy success – why not take the glory if you’re banking trophies?
The answer is because the success of auto-enrolment is not down to policy or to NEST but down to the half million employers who have staged and are operating compliantly. It’s down to the many workplace pension providers offering capacity and innovation to the market and it’s down to the business advisers, payroll bureaux and financial advisers who are averting a capacity crunch.
Choice matters!
The failure to differentiate between AE and NEST within Government circles is serious. NEST needs to be accountable on a number of levels, not least to the tax-payer. It cannot be waved through the strictures of Pensions Act 2017 in a chauffeured limousine. It cannot be promoted primum inter pares on tPR communications to employers and it cannot be given favoured nation status at PLSA conferences!
NEST is a choice, often a good choice but one of many. As the illustrations at the top and tail of this blog show, NEST now promotes itself as the “feel good” option, Bright Pay now present NEST as a kind of kettle which can be plugged into payroll without a moment’s thought. This would be fine if we were buying accountancy software, but we’re not.
Employers are buying a workplace pension scheme for their staff. This will be funded with real money that might otherwise have been paid to staff as wage increases. These workplace pension choices are too important to be dumbed down like this.
The DWP may argue that “no one can be blamed for choosing NEST” but that has yet to be proved. The threat to employers selecting NEST without due consideration for alternatives has yet to be tested, it will come through class action lawyers not from the Pensions Regulator. The threat may not even be as a result of perceived or real failure by NEST but because of failures by employers to demonstrate they acted for their employees in the selection of the workplace pension.
I am not scare-mongering, this is precisely the litigation that is being levelled in the states against employers who cannot evidence due diligence on the choice of 401k, it is why the banks cannot defend claims against them from the mis-selling of PPI.
Choice matters – not just in terms of outcomes – but in terms of liability. Employers who don’t choose but simply default into NEST (as the Government Scheme) are taking unnecessary risks not just with their employee’s savings, but with their reputation and ultimately with their businesses.
The same risks are being taken by business advisers who coral employers into NEST (or any other scheme) without requiring due diligence on the employer’s choice.
The distortion of choice
The debate as the PLSA was having it, was on the future of auto-enrolment. It turned into a debate on the future of NEST. That is because NEST is being confused with auto-enrolment.
But there are many choices available to employers other than NEST and in many if not most cases, those choices make sense. To make sense of choice you need due diligence and that is what organisations like pension playpen aim to do.
But the agenda is set against choice by the massive loan to NEST which allows NEST to offer services at below cost-price and write off development costs against either the tax-payer or a future generation of savers. The debt that NEST has run up is huge and it is real money. It is being used to subsidise NEST’s employers costs to the detriment and distortion of choice.
I see NEST’s complicity in allowing myths about itself to perpetuate as gross mis-selling. We need the matters raised in this and previous blogs (here and here) to be properly debated.
When I asked the former DWP shadow minister whether such a debate would happen, he told me there would be no political appetite for it. That was a dreadful thing for a democrat to say.
Workplace pensions sold like kettles