Damian Stancombe, a charming and affable cotemporary of mine, has reposted a 2015 article that asks whether Nest should be nationalised- “Nest pot or crack pot”
It’s helpful to look back on the past and learn. Damian’s article is prescient.
He is perhaps over fearful of Nest’s finances. At the time the £1.2bn loan from the DWP seemed impossible to repay, but the economics suggest that it can and will be repaid on time as Nest moves into profit and towards a fabulous financial future. It may have headwinds, the levy on its small pots, but it has no natural competitor for its asset base and its assets under management burgeon. As and when we move into a higher contribution structure, Nest will be able to consider whether it cuts charges or generates profits for the tax-payer.
But he is right to point out that auto-enrolment is a “decumulation disaster” waiting to happen. A survey conducted by Nest’s own Nick Chinn around the time of this blog found that a third of Nest’s members had confused their being in a state pension for their building up rights to the state pension. This seems an understandable mistake. At no point has the Government pointed out to the public as a whole that the pensions they are saving into will not pay pensions but offer investment pathways to various decumulation options. People can reasonably ask “what the hell does that mean?”
There was a long and often circular panel debate on this at a DG conference yesterday , where many in the audience scribbled notes while those on stage questioned how people were supposed to convert savings into the wage for life solutions implied by “workplace pensions”. This is Nest’s greatest challenge, but so long as it shares it with all the other master trusts, there will be no benchmark for better.
My guess is that , in the long term, Nest will deliver a pension , but Nest is more likely to do so , as a privatised rather than nationalised entity. The idea of Nest being run “for profit” may seem an anathema to many, but it is already a source of profit for many private institutions, very little of what Nest does is not outsourced in one way or another.
My logic for this is appetite. The income streams that Nest generates stretch inexorably into the future. Nest will become embarrassingly successful as a publicly owned enterprise and the price-tag it will command as it grows , will offer some future government a windfall it will bank. Like Royal Mail’s obligation to deliver the post, Nest’s public service obligation to service small employers and accept members who will be unlikely to ever have big pots, makes it a utility rather than a unicorn. But that is what pensions are and should be.
When Nest finds a way to convert its pots into pensions, it will also extend the duration of its income streams another 30 years. This will be the trigger point for us recognising what a “national treasure” we have built ourselves.
You can read the post as originally published here
Nest Pot or Crack Pot.
As AE rolls down into the mass small market, exposing millions of individuals to the potential risk of ending up dumped into a myriad of heavily pushed “next great things”. I worry that there will be an implosion as, one after another, these solutions struggle to hit critical mass, and when legislation tightens, can’t simply re price themselves out of it…
So what do we do.. ?
To me NEST as a vehicle should never have existed.
Instead we should have built on the concept of a living retirement income (akin to living wage) with the basic state benefit topped up from a sovereign wealth fund, funded through the established collection mechanism that is National Insurance. But hey Labour, the party of the private sector decided against it.
So NEST exists and is doing as far as I can see a credible job, though to be fair its hardest hump is ahead, but many including I thought they’d be on the ropes by now. The real question to me is where do we go with NEST?
Could the Tory Party nationalise NEST and make the most radical change ever in the world of saving?
Nationalising NEST wipes away its debt position and could help the Government’s desire, stated or otherwise, to consolidate the pension space (look at Oz) .
Back in 2001 we had 50 plus providers in the contract space offering Stakeholder and 1 Master Trust Stan Plan A. Today we have a handful of credible providers and 70 plus Master Trusts. Consolidation is failing and there remains a huge swathe 30,000 plus stand alone Trust based schemes. Larger companies will still offer their own stand alone arrangements but where Governance standards can not be met, NEST could operate given the right powers to hoover the market into the new world.
We have a decumilation (sic) disaster brewing. Mass market solutions are waiting for enough cash to be in the market before entering, collectiveness looks on hopeless. Could basic state pensions be paid through NEST, admittedly only partially funded to start with? NEST could be given the scale to drive through needed policy changes; like collectiveness or accessing a varying level of state pensions at different ages or indeed ability to work given health issues…
A nationalised NEST would create the entry floor point for communication and default investment. All future DC governance and Value for Money in the private sector would be benchmarked against it and need to exceed it. The needed public sector pension changes can be facilitated through NEST and the debate around tax changes maybe be driven as the new peoples’ champion.
Clearly NEST would need to be ring fenced from political interference but we could create something that we can be proud of now and for future generations. Competition would still flourish but at the right level of credible providers/ Master Trusts.
NEST POT or CRACK POT what do you think?
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