It’s not often that someone creates a business plan and sticks to it. But the plan for NEST, hatched between 2008 and 2010 and displayed to the EU in 2010 is being rolled out with method and purpose.
For those who only read my headline “NEST dirty washing on the line” missed the point. What NEST is delivering is precisely what was in plan. Colin, I do not have a vendetta against the public sector – and I don’t hate NEST. But I want people to know what they are buying and it wasn’t till the publication of Robert Devereux’s letter that I properly understood the plot.
Yes, NEST’s debt is doubling between now and 2026 and yes the current charges will persist till 2038 or thereabouts but for most people that is not a crime. There are around 300,000 active members of NEST – if it stays that way they will be bearing some £3-400 of debt repayment each with the balance being spread over deferred members with small pots. These are not great sums of money and they will be born in proportion of the size of contributions and pots.
The 1.8% charge on contributions is there specifically to repay the loan. The loan could have been repaid another way – through a charge on employers. Private sector competitors to NEST do charge employers either with an upfront or recurring charge. There are exceptions – L&G and Smart but they either have prescriptive interfaces or higher member AMCs. NEST offers employers a free implementation and a slick interface. Provided you play by NEST’s rules, NEST is not difficult for employers and there are now some 370,000 of them to prove it.
Where I have an issue with NEST – is not with yesterday’s disclosure, but with the lack of clarity over the past few years. Confusion has surrounded the £600m loan limit (I’m still not quite sure what it refers to – a cap on the first 10 years borrowings which is now put to one side?).
Since nothing has changed from the 2010 plan, why weren’t these numbers better publicised and understood? We can now be definitive, for the foreseeable future these charges will remain, the debt will be repaid and those who invest in NEST will be responsible for that repayment (not employers or the taxpayer).
Similarly the subsidies on the interest that NEST pays to the taxpayer via the DWP is understandable as explained in the Devereux letter. How much better to have had this statement when we asked for it – some four years ago.
For the choice facing employers (NEST v the rest) is now much more cleat. With NEST you are buying into a gilt-edged proposition that delivers to time and at a stated cost – it is not a bells and whistles product and does not offer scope for price reductions but it is as reliable as its name suggests.
Private products will offer innovation and the pension freedoms in a way that NEST cannot. The choice is not as stark as private education or healthcare, nor is there a premium price for a private plan, but the disclosures define the choice the employer has. The positioning of NEST is sharper and the choices easier for yesterday’s disclosures.
So well done NEST and the DWP. The timing is disappointing – we could and should have had this stuff earlier -though NEST will argue that they wanted the evidence they have gathered. But the disclosures are very worth the while.
Will they put employers off. Probably not – these numbers are not going to be front page news and even if a tabloid runs a splash, this will be good for the pensions debate. As Otto Thoresen- NEST’s chair has said, it is best that those who chose NEST know what they are buying.
Let’s hope that conversations about workplace pension choice will be more vivid and real for the disclosure, let’s hope that a few accountants will wake up to the money going to NEST belonging to real people who have a right to understand what they are investing into, and let’s hope that employers will question what they are buying and what they are bought.
At yesterday’s CSFI auto-enrolment round table, Michael Johnson claimed that AE has been a success because people have no engagement with what they are investing in. This may be true today, but it will not be tomorrow. In tomorrow’s world, people will want to know what is going on -which is why I am pleased with what NEST has told us!