3rd June 2013
It may be in the process of becoming the most important pension scheme in the UK, but if you are not a member of it, you may not have heard of it. If its projections for membership are correct many more people are going to join in the next few months and years. The National Employment Savings Trust, snappily known as Nest, says that it now has 210,000 members with assets under management of £8million – not that much money so far, but it is only getting started – since the last quarter of last year in fact.
Of course, 210,000 is not a small number – only the biggest UK employers can match that – but two to five million members is huge in pension terms. That is the range of membership Nest chief executive Tim Jones expects to have eventually, when the new pension reforms come fully into force around 2017/2018.
The wide range is no doubt down to whether employers select Nest or chose from the multiplicity of other pension schemes to enroll their employees into. It also depends on the numbers of employees who decide not to save into a pension, though as we have said in the past, they will have to actively decide to opt out, and therefore lose the contributions of their employers. That isn’t wise in financial planning terms.
If it is anywhere in the region of five million, Nest and its boss and staff will become hugely important for a huge number of UK citizens’ future well- being. The fact that Mr Jones is not yet a household name is not his fault. His organisation is doing its best to get the message out there. But it may be because of the frivolity and short-termism of the national media. While entrapping members of the House of Lords may reveal the flaws in the upper chamber, and flaws in the character of some politicians, it arguably isn’t fundamental to people’s lives. Following pension legislation through the committee stages of Parliament isn’t as glamorous, but is arguably much more important.
Anyway here is the progress report from Mr Jones the most important man in UK pensions you haven’t heard of. We have put his quote in italics.
“NEST is playing a critical role in ensuring that automatic enrolment is a success, and it is wrong to suggest that NEST isn’t attracting members. Our membership figures and assets under management are increasing rapidly. Since April, when we last reported membership figures of 100,000, the number of members in NEST has more than doubled to 210,000 and assets under management have increased to around £8million.
Before the start of automatic enrolment we made some estimates about potential volumes of members in NEST by the end of March 2013, not allowing for postponement. The actual number of members in NEST at the end of March 2013 reflected that most employers used their postponement period (three months), so variation in the figures is primarily about timing. We remain on track to have between 2 – 5 million members by the end of staging.
NEST’s role in the workplace pension reforms is to complement other providers, not replace them. If private sector providers can offer access to low charge, quality schemes to wider sections of the workforce that’s a good thing. The existence of other low cost providers in the market is demonstrative of the success of the policy and specifically of the impact that NEST is having. We welcome provision which offers good quality low cost pension provision for consumers.
Actual experience suggests that more employers than first thought may decide to use NEST, because of capacity issues and falling appetite in the private sector to take on all sections of employers’ workforces. NEST is ready to accept any employer that wants to use it, either as a sole scheme or alongside other provision, and is proud of the role it is playing in helping millions save for retirement.”
However another story this week, suggests why it is so important that Nest and its rivals among traditional and non-traditional providers are so important. Scottish Widows, one of those pension companies offering an alternative to Nest, has suggested that the UK is seriously under-saving to the extent that less than half of the over 30s are saving enough. The firm says that people should be saving at least 12 per cent of their salary towards retirement. (It may be possible to get away with less, if you start in your twenties, though that may not be popular among twenty-somethings in the midst of a financial crisis and a huge wage and income squeeze).
Intriguingly, the minimum the government proposes to require is eight per cent, three from the employer, four from the employee and one from the government in terms of relief.
Many industry commentators believe that Nest is going to host the pensions for employers who want to do that bare minimum. Nest, mandated by the government and set up using a government loan must, unlike any other player, accept the employees of any employer who chooses it. Legal & General, Aviva, the People’s Pension and all of the others can turn schemes down if they wish.
Developments in the market, that include the recent banning of a system that would have allowed employers to pay for the services of an adviser through the scheme contributions, probably make it more likely that Nest will run many more schemes.
If Nest hosts your pension, and that will be your employer’s decision not yours – then it could be of huge concern to you. Nest is key and has to succeed in spreading the pension savings habit if many millions are not to face retirement poverty with an accompanying huge amount of pressure on the tax base in twenty or thirty years time.
But if you are one of as many as five million people, does that mean there will be safety in numbers? Well it does mean that there will be a lot of people including politicians who can’t afford for something to go badly wrong. The seat Mr Jones is sitting on is certainly likely to become a very hot one.