“What next!?” @NEST

Maybe it’s because I’m still in India and have been mysticised, but I cannot believe that NEST’s most recent announcement has not caused a major outcry.

I am not talking about the shelving of NEST’s plan to be a provider of pensions to the great unwashed (there are a lot of great unwashed out here).  I am talking about the decision of NEST’s trustees not to charge on transfers in and to offer people a 0.3% AMC charge on all aggregated money.

Guys- this is not in the script! The NEST debt is around £500m and rising, with a bit of luck it will not hit the £600m cap on its drawdown against the tax-payer but there is no plan in the public domain as to how this money will be coming back.

The 1.8% contribution charge was one way of getting the money back, the other was the margin that NEST can make after paying its fund managers, TATA consultancy and its large payroll from that 0.30%.

The one hope on the horizon was that NEST could make something out of transfers in. So why are NEST’s trustees setting the TV in fee at 0.0% – especially as they have the discretion to charge the full 1.8%. The answer (I guess) is in the word  “trustees”. If the NEST Trustees see their role as protecting the interests of members, then it could be argued that the 0.0% charge does nicely. But my reading is that the Trustees need to protect all stakeholders – including the tax-payer who is already in it up to his neck.

I don’t really know why the pricing of NEST should be a Trustee decision anyway. The commercial executive of NEST are responsible for the repayment of that debt and if I was Helen Deane or Debbie Gupta, I’d be asking some long hard questions of the advisability of offering something for nothing – when you’ve got no other way out of your current financial problems.

It really is time that the taxpayer was presented with a financial plan for NEST which showed us when NEST is expected to start generating profits  and when debt will start being repaid. That plan should include a revenue forecast from which we can work out what NEST is actually paying for its asset management (it’s Investment Management Agreements are all subject to Non-disclosure agreements).

At a time when everyone else is pushing for transparency, NEST are remaining “obscure” at best! Without a clear view of how that debt is to be recovered , how can we have confidence in the sustainability of NEST’s current pricing structure?


It is not a great shame that NEST is not to build a decumulation engine to help us spend our pounds.

We argued against this extension of NEST’s powers because we know how much this would cost and we know that the profile of NEST’s membership means that the amount of money flowing through the decumulator would not produce the revenues needed to justify current spend. Better wait till we have a proper means of decumulation which (unlike NEST’s prototype) deals not just with the short-term, but also the longer term issue of longevity.

Somehow NEST has managed to get the headline writers to argue that they are being constrained in this. I suspect they will be delighted. Instead of having to build an expensive new product, they can now take limitless money into its coffers over the next few years, making the likelihood of it offering decumulation in the future inevitable.

The result of all this is that NEST will continue to distort the market, sucking money into its excellent product at well below cost price. How will any adviser be able to recommend transfers to any organisation other than NEST with that flat 0.3% fee in place?

NEST is getting the smoothest of smooth rides and anyone who thinks there wings have been clipped by this latest announcement, should think again.


This article is based on a reading of http://www.professionalpensions.com/professional-pensions/news/3005710/dwp-refrains-from-unleashing-monster-nest-into-drawdown-market

I would be interested in the views of any reader, as I am a little isolated geographically and don’t have the usual touchstones!

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to “What next!?” @NEST

  1. Colin Meech says:

    Workers need the cheapest pension they can get so 30 bps is great but where are the transaction costs? As a public sector provider they should lead the way. You should tell all your clients to join NEST.

    Liked by 1 person

  2. henry tapper says:

    Fortunately we do not live in a command economy but I do agree Colin, NEST is a brilliant purchase. Read my next blog to understand just who will benefit from the great NEST bargain, it isn’t going to be the worker!!

    Liked by 1 person

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