NEST’s duty to tell us how it spends our money.

This article is about the costs NEST is incurring, not to criticise those costs, but to publicise them as benchmarks to drive other provider costs down.

I had the privilege yesterday of having lunch with Richard Lockwood, NEST’s Finance Director. I was in the mood to talk costs as I spent the rest of the day at Accountex. Much as I enjoyed Accountex, the discussion with Richard was the highlight of the day.

Richard’s background is as a financial controller, Kingfisher, Home Retail and World Duty Free. He came to NEST because he knew about scale and cost control.


The word that re-occurred throughout the meeting was “obsession”; clearly the guy is obsessed by measurement. The grand plan, as outlined by Robert Devereux to the Parliamentary Committee, is his plan, his measurement of NEST’s current debt, projections of future debt and the longer term projection of NEST self-sufficiency (2038) are his. They are based on an understanding of the unit costs of keeping records, interfacing with employers and members and investing the money. Clearly there are variables and it wasn’t until he had reasonable certainty on those variables that he could happily  publicise these projections .

The numbers were with the DWP last October and were only disclosed to Parliament some six months later. This suggests the political sensitivity surrounding them.

Measurement and accountability were themes that impressed me.


However, I remain less impressed by NEST’s arguments about its social purpose which still appeared muddled.  NEST has always declared itself to be operating in a new space where standards are set because no service has existed before. We might call this “greenfield”.

The major expense that Richard incurs is the payment of Tata- who manage NEST admin. The contract with Tata was re-negotiated in 2016 and runs to 2023. We do not know the terms of that contract but I got the impression there is not much about it that doesn’t sit at the front of Richard’s head.

The other expenses, associated with marketing NEST and investing NEST’s money are similarly not open to public scrutiny but , as our conversation had it, part of the NEST obsession with value.


Here the conflict between public service and commercial enterprise is most acute. NEST’s scale (both now but particularly projected) enable it to target economies in record keeping, administration and investment administration and money management, that should be ground-breaking.

Unlike many of their competitors, NEST do not carry the corporate overhead of legacy business nor need it share the unrewarded costs of re-using legacy systems and processes. NEST is greenfield and can – like other newly established master-trusts, take advantage of the latest technology to minimise outgoings.

This it has done; NEST is lean and mean and should have the lowest unit costs of any DC workplace pension provider. So why isn’t it publishing these costs as the aspirational benchmark for its rivals? If NEST is providing a public service, it should be helping to drive down not just its own costs but those of workplace pensions as a whole.

This also goes for investment costs which (I am sorry to say) are still undisclosed , sitting behind NDAs which NEST- unaccountably – entered into at the point it set up. It is high time that these external costs were revealed. The argument that NEST secured super-low deals with UBS, State Street and others- on the basis that it would keep the prices secret should cut no ice with anyone.

  1. It is in the public interest to know what “best prices” are from these providers.
  2. Without knowing what NEST is paying, we cannot assess value for money
  3. NEST should be leading and not acquiescing to “common practice”.

If common practice is to keep fees hid, then we can have no progress on Vfm nor can we move towards lower fees for workplace pension provision. The annual management charge, which includes not just investment costs but marketing , governance and administrative outgoings, is no measure of NEST’s value or the money it is spending. It has no practical value in assessing value for money. To do that, NEST’s trustees must know and report on the efficiency of each aspect of NEST’s costs at something of the obsessive intensity as Richard Lockwood.

It is simply not enough for the general public to be told that all in the garden is rosy, we need to see the garden, the roses – and (where necessary) the compost. When I say “we”, I mean those people who are trying to assess what good looks like – that includes consultants, but also NEST’s competitors and the outsourced suppliers who should be benchmarking their costs against NEST’s.

Until NEST reveals what it is paying, there will be no NEST standard for us to measure investment management, investment administration, record keeping , marketing and governance costs against.

We need the same obsession that Richard Lockwood has with cost control , to be displayed in cost disclosure.

For NEST is not like other providers, as it keeps telling us, it gets its new business on a massive inertia pitch – it is the Government supplier and is hovering up employers at a rate of 1200 a day (a disclosure NEST is happy to make).

It should have nothing to hide and – since it is enjoying the munificence of a tax-payer subsidised loan, it should be putting back into the workplace pension community , the information that community needs to benchmark costs and lower them.

NEST has been in the past guilty of going it alone (most notably in not helping to create a joint industry standard for data-interfaces). PAPDIS came too late because PAPDIS and the NEST data standard should have been one standard.

The same could be said about value for money reporting. Instead of going it alone in the obsession with costs, NEST should be sharing its cost reduction measures with its rivals, to drive overall efficiencies’ through workplace pensions.

Instead Richard still mouthed the old platitudes about market practice which have prevented consumers from getting fair value as long as I have been working in pensions.

Let’s be clear. NEST must tell its suppliers that it is abandoning its NDAs and publishing its unit costs for administration and the costs it is incurring for fund management and administration. If it cannot do this, it should ask Government to step in and break the contractual terms with its suppliers that are preventing it.

Nothing less can do. There can be no concession to the commercial interests of the market when the market has failed us so long. The Asset Management Market Review, the Office of Fair Trading report and the Retail Distribution Review have pointed to market failure in financial services – some things have changed, but market failure persists.

NEST owes us £539 million of favours and that number increases to £1,218,000,000 by 2026. That is money that has been and will be spent by NEST’s members, they have to pay it back, they have a right to know that that money is well spent. I have no doubt, knowing NEST quite well, that it is well spent. What I don’t know is how well spent and those numbers become the greenfield benchmark to which other providers can aspire.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to NEST’s duty to tell us how it spends our money.

  1. alan says:

    So much for transparency…which seems to the the ‘common practice’ for all pensions providers (thinking specifically ‘NOW’ here)

  2. henry tapper says:

    To be fair to NEST , I genuinely think they have not considered how their position is changing. They are now authorative in areas that weren’t considered at their set up and they will need to adapt to their potential status as Vfm leaders. I hope they do – along with the other major players

  3. Andy Agathangelou says:

    Hi Henry,

    Can I use this for the Transparency Times please?

    Your investigative journalism is performing a public good.

    You should get knighted or something, but you probably won’t…

    Kind regards,


    Andy Agathangelou
    Founding Chair, the Transparency Task Force
    Founding Chair, the Technology Task Force
    Governor, Pensions Policy Institute
    Fellow, the RSA
    Chair, Pensions BIB,
    Member, Investment Association Advisory Board
    Former Founding Chair, Friends of Auto Enrolment
    Former Founding Chair, Friends of the Association of Member Nominated Trustees
    Mobile: +44 (0) 7501 46 03 08
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  4. John Mather says:

    I think if you lend £1.2b to any company they are in a strong position to deliver a low cost service so looking forward to receiving mine then adjusting the business plan to produce lower margin charges. Henry this is hardly a credible yardstick more a creation of the Ministry of Truth

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