Nest is recruiting three non-executive directors to increase the diversity of its Board. This is an opportunity, 12 years in, for Nest to ask fundamental questions about how it can move itself and auto-enrolment along.
Diversity of outlook
I cannot apply to be a Director of Nest without resigning my current positions, so I won’t. But I think I’m the kind of person who should be applying to be a Non-Executive Director as I would bring genuine diversity to the Board.
You do not have to be gay, disabled , an immigrant, young or old to know that these groups have different needs. What we need is diversity of thought and that can be achieved through empathy. We all have that within us that understands the needs of other groups. Packing the Nest board with representatives of diverse aspects of our culture is less important than diversifying the thinking of the Board.
So my first plea to Nest is to consider diversity in terms of outlook. We must avoid group think above all else. Conformity may make for easier board meetings but it does not lead to progress.
I appreciate that what follows is aimed at the Nest Executive, but the Nest board must be proactive in ensuring better member outcomes and should be challenging those in the policy, commercial and operational teams at Nest to raise their game.
Nest is one of several workplace pensions.
Despite Nest having a public service obligation to accept any employer needing to set up an auto-enrolment workplace pension, Nest is no different in the eyes of its users to any other workplace pension.
Despite this, Nest has set itself apart and considered itself different. A recent example is its failure to offer a bulk transfer facility, meaning that it cannot operate in the member exchange pilot being planned by the Small Pots Working Group. Like other industry initiatives (such as PAPDIS) , Nest has insisted that it is bound by its own rules and failed to adapt to be a part of the auto-enrolment eco-system.
Nest must integrate with other workplace pensions, it must allow employers with multiple members (most employers) to move from Nest to another workplace pension provider without member consent. It must stop consider itself as special.
Were I a Director, I would look to change the culture of Nest from “public service” to “customer service”.
Nest should review its commercial model – much has changed.
Nest has a charge on contributions that was required by the EU in order for the subsidy of a cheap loan from the DWP to be allowed. The nest charging structure is different from any other workplace pension and it creates an unwelcome distortion in value for money calculations. It needs reviewing both in terms of its structure and its quantum. My suspicion is that Nest is too comfortable with what it has and not striving to provide better VFM for its customers.
Nest needs to review its revenues and re-justify the basis of its charging structure. Auto-enrolment is much further advanced in its core purpose in 2022 than we could have expected in 2012 but Nest has changed little in its commercial model.
Nest should be taking a lead with the self-employed
It was good to read that Nest Chair, Brendan McCafferty considers the retirement savings of the self-employed “awful” and he is right that no reasonable Government would consider compulsory membership of a workplace pension as a remedy. But Pension Expert is right to point out that
According to the Department for Work and Pensions, the proportion of these individuals participating in private sector pensions dropped to 16 per cent in 2019-20 from 21 per cent in 2009-10.
The answer is simple, prior to the RDR in 2012, advisers could sell pensions to the self-employed and get paid, since then they cannot be paid simply from the product and so no longer sell pensions to the self-employed. Government may consider that the self-employed who are buying, are buying better, but if it wants to include more self-employed in workplace pensions, it will have to start with a distribution strategy.
Nest can and should take a lead in working with Government on this. It has the capacity to take the self-employed onboard (Pensions Act 2008) and it has an excellent pension proposition which is highly competitive with SIPPs. However, it is rarely put forward (even by Martin Lewis).
It is time that Nest came out of its shell and made it clear to the self-employed that it is open for business. It will be many years till the Government sanctions HMRC or the NI system to collect contributions for workplace pension providers, Nest should start advertising for business now and if that means getting some of its rules changed to compete, then get those rules changed.
Nest should adopt CDC as its default retirement option
The insane restriction that Nest is under, not to offer drawdown in the flexi-access sense, makes it a bad place for most people over 55 to consider turning pot to pension. It does have a complicated product involving UFPLS and side wallets but this is not capturing the public imagination.
Nest needs to by-pass investment pathways choice architecture and establish for itself and for other workplace pension providers a CDC fund which does drawdown for us , smoothes the income and pays it for as long as we remain on the planet.
Nest should be at the front of the debate, working with industry leaders such as Willis Towers Watson, Nest, Just and Aon, all of whom are working on models that allow people to turn pots to pensions in a simple and cost-effective way.
A radical agenda from our leading workplace pension
Nest is older than auto-enrolment, it started taking contributions in 2010, but it is one of auto-enrolment’s successes, taking up the strain of the vast number of employers who had never considered providing a pension for their staff. It took these on and has been responsible for managing the payroll interfaces, investing contributions and providing a fit for purpose member service for numbers of DC savers, no other organisation has come close to serving.
It has been financed to do this by the tax-payer and soon it will get to the point where its revenues will start exceeding its outgoings, by 2040 it hopes to repay its loans and be self-sufficient.
It is now looking to overhaul its board. I would urge it to include on the board, people who know about the matters in this blog and who can position Nest, not as the provider of last resort but as the leader for change that Nest could be.
Nest needs a radical agenda and the confidence to take auto-enrolment from where it is now, to a point where people think their saving will lead to them getting dignity in retirement. We are getting there, but we could go faster and be more ambitious in the targets we set our national DC pension.