The pensions industry has been
cautioned not offer a “knee-jerk”
reaction to government proposals for
the National Employment Savings
Trust (NEST) to offer drawdown
products, amid concerns the provider
could distort the decumulation
Reacting to a consultation on the
future of the defined contribution
(DC) scheme set-up in parallel with
the rollout of the UK’s auto-
enrolment reform, the pensions
industry warned against allowing
NEST to compete with, or replace,
private sector providers.
The largest master trust, the nearly
£1.2bn (€1.4bn) People’s Pension,
argued that the government “can’t
have its cake and eat it”, with its
director of policy Darren Philp
insisting that, if NEST wished to
compete with other drawdown
providers, the cost should not be met
by further drawing on its
government loan, which at the end of
March stood at £460m.
“Given how the market has
responded to the challenge of auto-
enrolment,” Philp said, “it is far from
clear why we should be using a
heavily subsidised government-
backed scheme to provide services
and products the market is well-
equipped to provide in its own right.”
Morten Nilsson, chief executive of the
£192m fellow master trust Now
Pensions, warned that NEST’s entry
into the decumulation market risked
“significantly [distorting] competition
in an already distorted market”.
“Its role was to be a provider of last
resort with the intention that it
should complement, not compete or
replace, private sector providers,”
Nilsson added.
NEST has been successful in
attracting more than 3.3m members
to date, reporting assets under
management of £970m as of the
beginning of June.
While some of its costs are met
through a 0.3% annual management
charge, additional costs are met by
drawing on the loan.
Immature decumulation market
Gregg McClymont, head of
retirement savings at Aberdeen Asset
Management, insisted the
decumulation market remained “very
immature” one year after the end of
forced annuitisation and the UK’s
pension freedom reforms.
Responding to those critical of NEST’s
potential entry into the decumulation
market, which the Department for
Work and Pensions said would only
see it offer drawdown solutions to
existing NEST members – thereby
ruling out the provider’s directly
competing with market participants
at retirement – McGlymont said he
was “very sensitive” to the arguments
put forward.
However, he also questioned how
long it would take the industry to
develop a drawdown product suited
to NEST’s target market, with its
stated goal of attracting largely
lower-income earners less likely to be
financially literate.
“Given NEST’s track record in the
accumulation space,” McGlymont
said, “given the characteristics of the
immature decumulation market, and
given NEST’s need to serve its target
market more widely, a knee-jerk
reaction is probably not the right
way to proceed.”
In the wake of the pensions freedom
reforms, NEST has been working
within its current statutory
framework, allowing those members
wishing to access savings to take one
or more lump-sum payments.
In 2015, the scheme outlined how its
future retirement offerings could
evolve to blend deferred annuities
and income drawdown – allowing for
income certainty and members to
benefit from future returns.
McClymont, previously the Labour
party’s opposition spokesman on
pensions, praised NEST’s work on
drawdown products.
“This is a market crying out for some
sort of innovation, and we’re all
trying to provide it,” he said.
“But, actually, it’s difficult because
usually you respond to consumer
demand in the market – and it’s
unclear what the demand is.”
The government consultation is set to
close in late September.