Experts warn of cracks in pension NEST egg
UK - The new national workplace pension scheme that will begin operating early next year has been rebranded as the National Employment Savings Trust (NEST). However, pensions experts say they are still concerned about the impact of means-testing and the delay of full implementation until 2017.
Previously known as personal accounts, NEST will be run by a not-for-profit trustee organisation known as the NEST Corporation and will eventually be one of the schemes available for employers to use to meet their auto-enrolment duties which phase in from 2012.
However, the government announced in its December pre-budget report that new companies and small and micro businesses would be given more "breathing space" between setting up a pension scheme and enrolling workers, and stated "an employee could be auto-enrolled into a workplace pension slightly later in 2016". (See earlier IPE article: UK gov't hints at auto-enrolment delay to pensions)
Commenting on the launch of the NEST brand and logo, Paul Macro, a senior consultant at Towers Watson, said: "It would be easier to build a nest if the government didn't keep shaking the tree. Following the PBR, it will now be 2016 before all employers have to offer pensions and 2017 before the modest level of minimum contributions is fully phased in."
Tom McPhail, head of pensions research at Hargreaves Lansdown, added that NEST is an essential element of the auto-enrolment programme, which is itself an essential element of the government's attempts to stave off the pensions crisis. "We can't get everyone saving for retirement without having a default solution for those companies that don't or won't have a bespoke scheme for their staff."
However, McPhail added: "The key message is don't delay. Enrolment into NEST won't be fully up and running until 2017 and every year of delay means a lower eventual pension." For example a 25-year old aiming to retire at 65 would see their pension reduced by around a third if they delayed saving until they were 30.
Macro pointed out that it is "easier to come up with a nice name than to reassure people that their financial eggs will be safe in this nest. There is still a lot of means-testing in the State pension system and making universal benefits more generous is not an option given the state of the public finances. Some people won't benefit fully from the money they save and the money their employers put aside for them. The big communication challenge is how to give them fair warning without putting everyone off saving."
Dr Ros Altmann, independent pension policy expert, also warned: "Changing the name of personal accounts to NESTs will not make them work any better. Indeed, by ploughing ahead with this project - regardless of the risks to lower and middle earners they are aimed at - the government is continuing to ignore the dangers of forcing workers into a pension arrangement that may not be suitable for them."
McPhail agreed there are some outstanding problems, including the reliance on means-tested benefits, while the "clumsy" earnings definitions for NEST and other exempt pension schemes will encourage levelling down.
Work to create the NEST brand cost £363,000 and was the result of nine months of research with around 3,000 people, to try and identify a brand that would "resonate with the scheme's potential members", according to a video on the Personal Accounts Delivery Authority's website explaining how it created the brand.
Tim Jones, chief executive of PADA, said: "We have followed a detailed, research-based process to ensure this will be a brand designed 'by members, for members'. NEST is clearly favoured by both potential members and employers."
Angela Mohtashemi, HR and pensions communications director at PricewaterhouseCoopers (PwC), said: "Revealing the scheme's name and logo gives the scheme its own identity and reinforces the distinction between it and the auto-enrolment regime. This is important as the previous terms had become largely, and incorrectly, interchangeable."
The rebranding exercise has been completed as PADA continues with preparations to begin a 'soft launch' of the scheme in 2011. It is in the process of recruiting a pensions administrator, and the initial shortlist of four organisations in the competitive dialogue has now whittled down to Tata Consultancy Services. (See earlier IPE article: Tata becomes only candidate in UK personal accounts bid)
It also plans to issue a tender for fund administration and global custody services for NEST in early February.
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