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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.”

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Guide: Johnson Fleming produces auto-enrolment checklist

For a job as big as managing the auto-enrolment changes, it’s important to know what has been completed and what still lies in front of you to give you the reassurance that everything is in hand. Getting the planning and project management right at the outset can help you see the path ahead and ensure everyone knows their roles and responsibilities. To help with this, Johnson Fleming has produced a checklist outlining every step that needs to be taken when preparing for auto-enrolment.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Oh dear …..
    Sounds like AE must succeed at any cost !

    Please the job to the experts !!!

    Expensive crap is …. At the end of the day still crap !

  2. Julian Stevens 8th July 2016 at 9:57 am

    NEST is a classic example of a bunch of civil servants with, between them, little or no commercial experience having blithely and completely erroneously assumed that a government body was going to be able to do something less expensively than the private sector and, as a result, having massively underestimated the actual costs. The amounts it needs to borrow from the Exchequer go up and up whilst estimates of the time it’s likely to take to recover those loans get longer and longer.

  3. Assuming interest is being charged on the debt it would seem that the total charges recouped by NEST currently fall short of that interest – let alone meet the cost of the admin, staff wages, fund management fees etc etc.

    It would be interesting to see when NEST is projected to break even and on what assumptions this is based.

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