The National Employment Savings Trust (Nest) – the government-backed retirement scheme provider – could be set greatly to expand its role in pensions provision, potentially driving down prices across the board. The Department for Work and Pensions (DWP) has just launched a consultation paper, looking for industry reactions to plans to expand Nest’s range of services.
Nest was officially launched in 2012 as part of the government’s “auto-enrolment” plan, which is designed to encourage saving for retirement by making sure that all employees in the UK have access to a low-cost workplace pension, regardless of whether or not it is actually profitable to provide the service. Nest is now one of the biggest pension schemes in the UK, with 3.2 million members.
However, following Chancellor George Osborne’s “pensions freedom” changes, which came into place last year, the DWP wants Nest to be able to offer more services. When Nest was established, most people – particularly those with relatively small pension pots – would buy an annuity (a lifetime income) on retirement. That’s no longer the case – when retirees turn 55 they can take their entire pension pot out as cash, or leave it invested and drawdown an income from it as and when needed.
Currently, if Nest retirees want to take advantage of these changes, they would have to change provider. So now Nest wants to be able to offer low-cost “flexible decumulation services”, as the consultation document puts it. It’s even suggested that individuals who save with other providers could choose to switch to Nest for their decumulation phase. Last year, Nest outlined a three-phase scheme that would allow savers to continue to work, save and draw an income during their 60s and 70s, before eventually buying an annuity in their mid-80s.
Unsurprisingly, some private pension providers are a little put out by the idea of a state-backed competitor muscling in on their turf. Tom Selby at broker AJ Bell argues that the market is already competitive, and that “there is a serious sense of mission creep about the government’s proposals”. It’s little wonder they’re concerned – according to Katie Morley in The Daily Telegraph, “sources close to the situation said Nest will use ‘suicide pricing’ to ensure it offers the cheapest flexible pensions in Britain by getting taxpayers to part-fund the charges”.
However, it’s clear that if these changes are indeed pushed ahead, and the added competition in the drawdown market drives down prices, that could end up being very good news for consumers. The consultation closes in September and a summary report will be published within three months.