Auto-Enrolment (AE) regulations finally take hold in just over 4 months time, yet the goalposts for the exercise are constantly being moved.

Actually, moved is an understatement. The goalposts seem to have wheels attached, and it’s virtually impossible to see where they will halt next. This is wrong, and means that employers and consultancies who are doing the right thing by planning in advance for these changes are doing so against regulations and targets that are in flux.

The latest shift could well be on the subject of restrictions imposed to the NEST pension scheme. MP’s have been calling for a removal of these restrictions recently, but it may be that much of the traction for this call has originated from NEST itself.

(For more on the MP’s story please see the following link: https://www.thisismoney.co.uk/money/pensions/article-2115362/MPs-low-cost-pension-scheme-NEST-opened-all.html )

But why would this be?

Well NEST has seen several significant challenges to it’s proposed business model over the last year or so:

• Last November the Government delayed the Auto-Enrolment timetable for smaller employers. This means that fewer companies will utilise NEST in the next few years, and therfore fewer employees will be subject to auto-enrolment in the short term.
• At the same time the Government also introduced a further staggering of the legal minimum contributions under the AE regime. Thus, even those that are Auto-Enrolled, will not be legally compelled to increase contributions for some years to come.
• Competitor schemes for the suggested NEST target market (which in theory is largely low paid and/or transient workers) have now come out of the woodwork. These schemes may offer attractive alternatives to NEST, as they conform to a more simple charging model, have fewer restrictions, and may also offer a track-record of success (whereas NEST is effectively a new business).

What makes the above a real problem for NEST is that they are not directly funded by the state.

Rather than receive direct Government funding, NEST has been established under a Government ‘loan’, and like all loans this has to be paid back over time.

Given this, the above delays represent a real problem for a business model that will be largely based on sheer volume of members and minimum legal contribution levels. Thus NEST will want shot of any restrictions that worsen the appeal of their offering.

BUT…

If the restrictions are removed for NEST, surely this makes the NEST offering anti-competitive?

Funded by a loan from the state, and with state support in publicising (not to mention a much spoken about ‘public service duty’ attached to the scheme), it would certainly appear that NEST has an unfair competitive advantage over existing schemes and providers.

Although it has never been made clear, it is presumably the case that the NEST restrictions were put in place to nullify this advantage. So it now seems unreasonable that MP’s are calling for these restrictions to be removed.

I don’t think anyone in the industry would be against removing certain barriers from the NEST offering over time. But now is not the time to do this.

Many employers have already made their decisions around AE on the assumption that they knew what NEST was. To change the rules now would be both unwise and unfair.

Oh, and let’s not forget that NEST was, primarily, designed to be catch-all scheme for anyone that did not otherwise have a choice, and not a competitor to the existing savings market. If the intention was to make NEST the state’s answer to private pension savings, this should have been clear from the start so this could have been legally challenged at that point.

A further change in favour of the NEST model at this stage may well create a backlash from both employers and the industry which would be unwelcome. Over the last few years both groupings have taking steps towards working in partnership with NEST, and that is key if the Savings Gap is to be effectively diminished over the coming decades.

It will be interesting to see what happens on this point. Let’s hope that before any decision is made this is the subject of a consultation first. Failure to do this, could be counter productive to all parties in the long run.

Will keep you posted.

Best regards

Steve