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Nest rules out auto-enrol employer charge despite funding woes

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Nest claims it has “no plans” to add an auto-enrolment employer charge despite a stark warning from the National Audit Office over its funding.

Last week, Money Marketing revealed The People’s Pension will begin charging employers who sign up with the provider on or after 23 November and have staging dates in January 2016 and beyond.

Employers who come direct will pay £500 plus VAT, while businesses who join the scheme through an adviser will be charged £300 plus VAT.

The provider follows rival mastertrust Now: Pensions which in September announced it would be adding a charge of up to £40 a month from 2016.

The latest news about auto-enrolment charges came after the National Audit Office warned the Nest scheme funding model is “inherently uncertain”.

A report from the NAO, published last week, assesses how the Department for Work and Pensions has handled auto-enrolment.

Nest was set up with a DWP loan, which stood at £387m as at March. In the year to March the scheme had income of £18.5m but outgoings of £98.7m.

The NAO report says: “Although Nest will grow its funds under management as auto-enrolment and contributions increase, its funding model is inherently uncertain.

“As a simple illustration, for Nest to have been able to meet its costs in 2014/15, it would have needed to have around £20bn in funds under management.

“Given the Government’s stated aim that Nest should be run on a not-for-profit basis and repay the Department’s loan in full, it will therefore need to grow its assets under management significantly from the £420m in March.”

It adds there has been a “significant amount of change in UK pensions” since the loan was agreed in 2010.

Nest’s terms and conditions state the scheme can charge employers to recover administration costs. But a spokesman says there are “no plans to introduce a charge for employers who use Nest”.

He says: “Nest will continue to be a low-cost scheme for members. Nest was established to ensure a good quality qualifying scheme was available to any employer that needed to use one.”

Nest executive director of finance Richard Lockwood adds: “The exact length of time it will take to achieve the level of assets under management required to repay the loan and become self-funding depend on a number of factors that are very difficult to estimate until auto-enrolment is fully implemented.”

The People’s Pension and Now: Pensions say the new charges will pay for improved support services to help the 1.8 million small and micro firms yet to begin enrolling staff.

The People’s Pension chief executive Patrick Heath-Lay says: “Our research and 30 years of experience working with small employers tells us they want simple solutions and a great deal of support in meeting their auto-enrolment duties. Our doors will remain open to everyone who wants to come to us, regardless of their size and their sector.”

Adviser view

Andrew Day, Principal director, Depledge Strategic Wealth Management

Most of us thought the employer charge from The People’s Pension was inevitable. You can’t blame them as most of their customers are saving tiny amounts. It’s not inevitable Nest will follow because it has an upfront charging structure.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Isn’t it amazing how all these things, like NEST, MAS and Pension Wise, designed to cut out us greedy financial advisers, fall flat on their faces?
    Who could possibly have envisaged that?

  2. Nest entered a pact with the Govt. They were the only ones willing to take on this task. They therefore currently have higher charges than other schemes. The PR is that these will be reduced. I recon – fat chance.
    This then brings a situation on which I have already commented and foretold. AE is not a viable business proposition and fees and charges will inevitably rise over time as the administration burden becomes untenable.

    Then what have we got? May as well just left Stakeholder in place for the masses. All this kerfuffle and cost for a journey down a blind alley. When the contribution levels go up workers will start opting out. Small firms are already railing against the increased bureaucracy. It is only Government spin and PR that perpetrates the myth that this is a great plan admired by all.
    It is in fact a tax and a bureaucratic nightmare foisted on (in the main) an unwilling public and reluctant small firms.

  3. This is a non-issue. The government cannot allow auto-enrolment to fail and this means that NEST will not be allowed to fail. The government will give it whatever funding it needs to ensure its survival. The only question is how it is dressed up.

  4. It’s not about failing Siz, it’s about the sustainability of NEST’s current pricing model. Many accountants with large books of employers yet to stage are looking for a default option to which they can place the book. they started with NEST, progressed to tPP and are now considering NEST.

    I don’t agree that employers should decide on price but that’s what’s happening. I don’t think that this decision is in NEST’s hands- the DWP will listen to the NAO and act accordingly.

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