Auto-enrolment delay set to hit Nest hardest

The Government’s decision to delay the timetable for automatic enrolment will create significant problems for Nest, say leading pension figures.

Pensions minister Steve Webb said last week that auto-enrolment will be pushed back until after May 2015 for companies with fewer than 50 employees.
The delay presents problems to pension schemes planning to serve small and medium-sized employers once auto-enrolment has been rolled out, most notably the Government-sponsored Nest scheme.

Experts say the delay will force Nest to retain the 1.8 per cent contribution charge used to pay back its Government loan for longer.

Standard Life head of pensions policy John Lawson says: “Nest will have the biggest problem as a result of the delay because it is relying on small firms to build scale.

“It will inevitably now take longer for Nest to pay back the Treasury and become a self-sufficient provider.”

A Government review of auto-enrolment and the restrictions placed on Nest was due to take place in October 2017, when the phasing of contributions would have been complete under the previous timetable. This may be pushed back by at least a year.

Under current rules, Nest is not allowed to accept transfers in or pay transfers out. Employees who use Nest are also subject to an annual contribution cap of £4,200.

A Department for Work and Pensions spokeswoman says any changes to the timing of the review will be announced in January.

LEBC senior consultant Greg Nicholls says: “I do not think this will sit very well with Nest, especially if the contribution cap is retained for longer.

“This will not have a big impact on employers with more than 50 employees. The big concern is that this will not happen for small employers at all because it is not clear that the economy will be any better towards the end of this decade.”

Nest managing director of scheme development Helen Dean says: “The Government has made it clear that automatic enrolment will apply to all employers with no exemptions. We welcome confirmation that small businesses will be staged in at the start of the next Parliament.

“Nest is on track and is already working with a number of employers and members ahead of the onset of employer duties next year. In the longer term, the impact of the Government’s announcement is to change the timing of membership of workers from smaller firms into all qualifying pension schemes. It does not change the eventual numbers expected to start saving for their retirement under automatic enrolment.”

B&CE, the workplace pension provider for the construction industry, recently announced plans to launch a multiemployer trust-based pension scheme designed to rival Nest ahead of auto-enrolment.

Director of customer solutions Jamie Fiveash says: “This is just another example of the Government moving the goalposts, which has happened throughout the auto-enrolment process.

“We have tried to give a clear message to our customers about these reforms through our roadshows but now we are going to have to go out and do it again, which will cost time and money.

“Some small businesses will think this is never going to happen now so they simply will not bother preparing. It is incredibly frustrating.”

Danish pension provider ATP will launch Now: Pensions in January 2012. The scheme will charge members £1.50 a month for administration plus a 0.3 per cent investment management charge.

Chief executive Morten Nilsson says: “This is a disappointing decision because there is never going to be a good time for small employers to comply with the legislation.

“This means we have to wait longer to receive business from small employers but we still think the UK is an interesting market and we will continue with our launch in 2012.”