Nest loan rockets to £460m as rivals warn of ‘mission creep’

Otto Thoreson

Nest’s loan from the Department for Work and Pensions has rocketed to £460m, a 19 per cent increase on last year.

The Government-backed auto-enrolment scheme’s annual reports – published today – show the loan has grown from £387.1m at March 2015, to £459.6m at the same point this year.

Nest says the loan is to meet set-up and running costs and will be repaid from charges levied on scheme members. The interest is payable in April and October each year and is set based on the rate at the time the loan was taken out.

However, in the year to March 2016 the scheme collected just £9m from members’ contribution charges and the annual management charge levied on funds. In 2015 £5.8m was collected.

Earlier today the Department for Work and Pensions published a call for evidence on radical changes to the scheme.

These include creating in-house decumulation products, such as drawdown, and expanding the scope of the scheme to include individuals.

Nest Chair Otto Thoresen says: More employers than ever are set to choose a provider this year and as the only scheme with legal duty to be open to any employer for auto enrolment we have to be ready to accept significant volumes.

“Our business review sets out how we have been preparing. As we told the Committee, uncertainties about external factors such as employer volumes, opt out rates, contribution rates and many other variables mean we cannot yet be definitive on our total funding requirements or the likely timescale for the repayment of the government loan.

“However with auto enrolment continuing to progress well we remain confident that Nest will become self-financing over time. DWP is due to provide an update to the PAC in January 2017.”

However, providers have hit out at Nest’s expansion plans.

The People’s Pension director of policy and market engagement Darren Philp says: “Given how the market has responded to the challenge of auto-enrolment, it is far from clear why we should be using a heavily subsidised Government-backed scheme to provide services  and products that the market is well-equipped to provide in its own right.

“The DWP can’t have its cake and eat it – if Nest wants to be on the same playing field as everyone else, then it needs to play by the same rules. The consultation makes no comment about how these extra services will be funded – this should not be paid for by the taxpayer.”

AJ Bell senior analyst Tom Selby says: “There is a serious sense of mission creep about the Government’s proposals to expand Nest into a new state-backed open market individual pension provider in an already competitive market.

He adds: “While it would be good for existing Nest members to have access to a drawdown solution in the wake of the pension freedoms, it is questionable whether there is a market need for a wholesale state-backed individual pension and drawdown provider.”