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Nest could fall millions short of target

The National Employment Savings Trust could be hugely overestimating the size of its target market, according to Standard Life.

The scheme, which will launch in low volumes next year, is being prepared on the assumption that membership will fall between two million and six million once all employers are subject to automatic enrolment.

Nest chief executive Tim Jones says: “At the end of staged introduction, we anticipate there will be between two and six million contributing members of Nest.”

Standard Life head of pensions policy John Lawson claims the company’s own calculations estimate a potential market for Nest of just two to three million, although a high opt-out rate could see membership fall to as low as one million.

Lawson says: “As a result of the minimum threshold going up to £7,500, we will want to enrol the 4.8 million non-joiners who are currently working for employers that have an existing scheme with us because they are more attractive to us now.

“This might leave big questions for how Nest’s finances stack up. If it gets a big opt-out rate, say, 40 or 50 per cent, then it is only going to get 1-1.5 million members.”

Jones says: “We define Nest’s viability as the ability of the scheme to become self-financing while providing consistently low charges to members. We are confident this is achievable. Our estimates reflect the latest data and evidence available. The estimates will be regularly updated as new evidence emerges.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. I keep hearing Standard Life and other large life companies having a pop at NEST.

    While I agree with a lot of what they are saying I havent heard them offer anything better as yet.

  2. Nest = Stakeholder = another failure!

  3. My concern with NEST is how are TATA going to make it pay?

    If they can’t make it pay will we see in a few years time many people with very small pension pots left in limbo?

    The 2% initial charge is obviously a concern but if it does end up being as low as 0.5% per annum in the long term that may be fine if there is a good fund choice, but no one knows what the fund options are yet so too early so say.

    Still a lot of questions to be answered though.

  4. People consistently miss the point. NEST is a smoke-screen. It is auto-enrolment that is the issue.

    An awful lot of companies will auto-enrol everyone into a NEST alternative.

    It’s the biggest opportunity for pension advisers and pension companies in years.

  5. David Trenner - Intelligent Pensions 4th November 2010 at 10:10 am

    PensionMan, Standard keep popping at NEST because they want to compete at the bottom end of the market. I think that they still believe that Market Share equtes to profitability!

    Standard is the company which sells Group SIPPs to other employers, but doesn’t have one for its own staff. What does that tell you?

    Nick, Nest does not equal stakeholder, and we need it to work. Otherwise we are going to see pensioners begging on the street!!

  6. David – do you really believe that this will make the slightest difference to pensioners in the future. It’ll make things worse!
    People will believe they are saving for a pension until they retire and get £18 a month!

  7. David Trenner - Intelligent Pensions 4th November 2010 at 11:01 am

    Nick, At the bottom end even £18 per month could be significant.

    Our generation started work when most employers offered some sort of pension scheme, but 30 years later despite increases in the working population there are less than half the number of people in pension schemes.

    We can do nothing – after all we will be long gone when it hits our children and grandchildren! – or we can promote NEST and auto-enrolment so that the future generations have some sort of provision.

    NEST will come too late for folk already in their 50s and 60s, but not for everyone else!

  8. Regardless of how much NEST costs (before it’s even off the starting blocks), how heavy its charges end up being (probably knocking on towards 3% AMC), however unknowable the opt-out rate will be, however small each participant’s accumulated fund at retirement is likely to be (allowing for heavy charges and possibly mediocre fund performance ~ as seen with many hundreds of thousands of old Allied Dunbar PP’s), however much employers are likely to resent the imposition of a scheme like NEST at a time when they may well still be struggling to stay afloat until the storms of Labour’s catastrophic mismanagement of the economy have finally started to abate, however distrustful of pensions the general public may well still be (any meaningful news on the simplification front?) however crucial the omission of any margin for the cost of advice (so more expense for employers) may be…………well………..bugger all that. NEST’s a good idea in principle (if riddled with flaws in practice), it’s going ahead as planned so you’fd better all stop whingeing and just get with the programme.

    Sounds a bit like the FSA and its RDR when you think about it. Then again, government and the FSA are more closely linked than either party’s prepared to let on, despite what Messrs Hoban and Sants would have us believe.

    It’s all rubbish, isn’t it?

  9. Just had 2 horrible thoughts although other people have mentioned them before.
    1) Any bets for WHEN means-testing for the Basic State Pension will come in?
    2) perhaps the real goal is to get enough people to have a small NEST pension, so that the government can disqualify them from state benefits?? My latest blog “Sign Here” mentions this.

  10. You cannot trust UK Gov to keep its meddling fingers out of Nest. Look at SERPS. Ask why the platform went to TATA and the Admin to State Street. I know how much the platform costs and much the admin will cost. 2% will not cover it. Have a look at the funds on offer, take 2% out of those funds and your money will actually be eroding due to inflation. The Indian State Scheme would have been a much better bet. Only one fund its cash and pays 8% at the moment.

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