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The Government's review of NEST is now underway as part of its overall spending reforms.
The timing of the review is critical and is set to conclude just before the second part of the contract with TATA consultancy is due to be finalised for somewhere in the region of the not trivial sum of £600m.
Not surprisingly there is much talk of whether the industry could provide an alternative solution if the government decides NEST is not the way forward. Issues about interaction with means testing, concerns about the cost of administration for employers and the compliance burden falling on The Pensions Regulator all continue to be voiced but one question doesn't get raised very often and it is this.
If there are risks in the cost of administration and compliance in collecting, reconciling and passing contributions for small employers into NEST, then surely this risk remains for any other participant in the NEST target market. The issue is really that a slick technology solution to clear contributions for mobile, job changing employees remains the key. Many of NEST's individual members will be holders of either active or paid up individual pension contracts.
Perhaps allowing employers to divert contributions to these contracts through a centralised clearing mechanism would provide an equally portable solution. It would certainly reduce the number of small paid up pots that NEST is likely to end up with after a relatively small period of time, and would mean that members would have more flexibility and choice as their pots grow in future.
Worth a thought.
Steve Folkard is head of pensions and savings policy at AXA.
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There must be a cheaper way!
Surely the government should consider collecting the contributions through the DSS. The systems are broadly in place already, the cost will surely be less .... and the jobs would be retained in the UK - cutting the unemployment benefits paid out
Posted by: Simon Gould
one pot
I am not completely familiar with NEST but why not collect any contributions under one system, the same way we collect NI could it be possible to run NEST alongside the NIC system, after all people who move jobs frequently still pay their NIC wherever they go, in this time of technology they should be able to design a system to suit.
Posted by: Geoffrey
Why not jump-start Stakeholder?
Interesting article Steve. However, giving unadvised employees free rein to apply employer contributions to any old PP would throw a lifeline to all the rotten old policies that Stakeholder was designed to replace. In our view the main reason why Stakeholder failed to take off properly was that the Government of the day bottled out of making employer contributions compulsory. We have used Stakeholder extensively in small group schemes with excellent results for people our services would not normally reach. Now that we have the basis for employer contributions ingrained in statute, Stakeholder pensions would seem to provide a tailor-made solution if combined with Steve's idea of a centrally controlled employer contribution clearing system. Much cheaper than this unworkable monolith dreamed up by the last administration, and all the systems are already in place. The schemes could be introduced on a Direct Offer basis, with Restricted advice on fund choice available if desired, with a lifestyle default system if not. Simples.
Posted by: Mike Shaw
Nothing more than a tax
NEST was a typical Brown idea. Pass the parcel. Let private business fund the country’s pension. A compete abrogation of responsibility cloaked in cowardice and mendacity. If we need a better pension for the less well off population (and we do) then do the decent thing and increase the state pension. If taxes have to rise then so be it. But this lousy idea should be throttled. The bribe is to the fund managers and the life industry who are wetting themselves to have a piece of the cake. Sure they cannot swallow the whole thing, but they hope to get fat nibbling the icing. We still pay the most parsimonious state pension as a percentage of national earning in G20 so the Government should have the courage of its convictions. Most of the population still believe that NI pays for their health Service and Pension, when in fact it is a huge calumny and is nothing more than Income Tax in a different frock. A bit of honesty (for a change) from those in Westminster would not only be a surprise, but would be very welcome.
Posted by: Harry Katz
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There must be a cheaper way!
Surely the government should consider collecting the contributions through the DSS. The systems are broadly in place already, the cost will surely be less .... and the jobs would be retained in the UK - cutting the unemployment benefits paid out
Posted by: Simon Gould