23 August 2016

Why do we need to dispell myths about NEST?

The last quarterly update form the Pensions Regulator (tPR) highlighted that employers are simply not taking auto-enrollment seriously enough and leaving things to the last minute. It’s also worth noting that a lot of the enforcement actions reported from the last quarter will be relating to staging dates in June, July and August last year, as their Declarations of Compliance won’t have been due until October, November and December, and tPR seems to be giving employers the chance to put things right themselves before slapping them with a fine.

Therefore, in this worrying trend of increasing non-compliance, 36% of all Fixed Penalty Notices issued in the last quarter and 75% of all Escalating Penalty Notices are probably not yet relating to micro employers.

Apparently one in two employers staging today are going directly to NEST, which is very worrying as there is a misapprehension that going to NEST will mean they’ve complied. Therefore, I thought it would be useful to dispel some of the myths about it.

Did you know?

• NEST was set up by the government to make sure that every employer would have access to a qualifying workplace pension scheme (QWPS) to comply with the auto-enrolment process.
• It was supposed to be the last resort for small/micro employers who couldn’t find an alternative pension provider
• The scheme is only a pension scheme
• It is administered by TATA Consultancy Services in India
• The pension scheme provides limited support via a telephone helpline to India
• The auto-enrolment legislation is only partially about pensions, it is mainly about data, administration and process
• The scheme does not have a simplified bulk registration process
• It does not manage the assessments, communications, opt-ins, opt-outs, declarations of compliance, etc, which ultimately means:
  • You have to do all of this yourself; and
  • You undertake more work than you would otherwise need to
• The NEST pension scheme may not be in many employees best interest because
  • It is not portable and does not allow transfers of pension funds in or out
  • It has a maximum contribution limit of £4,700
  • The scheme only has six investment choices
  • NEST does not support salary sacrifice
• NEST does not currently have any employer charges, however,
  • It borrowed £387m from the government
  • If not for the tax-payer, NEST would fail any due diligence on their sustainability
  • NEST requires £20bn in assets to meet their costs, but current assets are less than £1bn
  • The last reported accounts showed NEST now owing £460m to the Department of Work and Pensions
  • Estimates show that NEST is currently around 70 years away from sufficiency
• Faced with these financials, one must consider how NEST could accelerate their repayment structure. With no scope to increase member charges, there is a significant risk that it will have to take money from its existing and future customers.