B&CE welcomes the publication today of the DWP Select Committee’s report on NEST and Auto-Enrolment.
It welcomes the Committee’s recommendation on the introduction of reforms to the State Pension and hence removes the considerable disincentive to save for retirement caused by the current system of means tested benefits. It also welcomes the Committee’s recommendation that we need to ensure that we have clear transparent pension scheme charges that everyone saving for their retirement can clearly understand. However, it has serious concerns about the Committee’s recommendation to remove the restrictions on NEST as this is in direct contravention of the reasons why NEST is being established.
With regard to the Committee’s recommendation that the Government should remove key restrictions on the operation of the National Employment Savings Trust (NEST) as a matter of urgency, B&CE’s view is as follows:
Firstly, we want to make it clear that B&CE is not a new entrant to the market as we have been providing pensions on a not for profit basis for a particular sector of the target market (low to moderate earners) for auto-enrolment for 30 years. Our strategy to launch The People’s Pension has been driven by two factors; demand from our customers and competition in the market place from NEST.
NEST (PADA) was conceived with specific objectives; namely to serve small employers and low to moderate earners who may not be able to gain access to a good quality, low cost scheme. NEST was also designed to complement good existing schemes and it was thought by many, including B&CE, that NEST would be operated on a passive, ‘open door’ approach to those who wanted to use them. In reality, what has happened is that NEST has been aggressive in hunting larger employers, presumably incurring large costs in doing so, including those where good pension provision already exists. As one of the only organisations actively serving the low to moderate market for 30 years, we have seen thisactive, aggressive approach amongst our larger customers and this has been one of the driving factors for the launch of B&CE’s The People’s Pension.
The restrictions being proposed to be removed were put in place for NEST to concentrate on its original remit. Despite these, NEST appears to have pursued a business plan in contradiction to their original objectives. NEST was given a large amount of funding that could be considered as state aid to meet this objective – this aid is not available to other providers and the details of its terms are not in the public domain. Both the DWP and The Pensions Regulator also make specific mention of NEST in their communications. We therefore already have a playing field tipped in favour of NEST, so removing the restrictions, will make the position worse. While we may be one of the very few providers who have first hand experience of NEST’s approach in the market, removal of these restrictions will only serve to allow further deviation from its original remit, potential further changes to proposition and ultimately deliver a preferentially funded, state-backed pension competitor to all providers within the pensions industry.
We also completely disagree with the comments that NEST cannot achieve their objective with the restrictions placed on them. A huge segment of the potential market, of over half the working population work, is within the SME sector. This isNEST’s primary target market and is not due to come in to scope for automatic enrolment for 3-4 years. How can anyone know now whether NEST cannot achieve its objective at this point on time? We believe this only goes to prove that policy makers have lost sight of what NEST’s original objective was. The healthy competitive pension’s market place at the moment is providing employers access to excellent pension scheme offerings with low charges – why do we need to change anything if consumers are not suffering as a result?
Overall, the Government’s primary focus should be to ensure employers can access a good pension scheme and that auto-enrolment works – the current pensions market is delivering on both these fronts so far. NEST’s own take up and ability to repay its loan should be deemed a secondary objective – and something which should not be assessed until smaller employers begin to come in. In conclusion, the review in 2017 as planned is the appropriate place to consider NEST’s role going forward and whether the restrictions need to be removed.
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