Pension savers may shun NEST due to high cost of debt repayment, consultancies say
UK - Towers Watson has warned that the level of debt repayment the recently confirmed National Employment Savings Trust (NEST) is facing could dissuade savers from using the platform.
In the wake of yesterday's Comprehensive Spending Review (CSR) by chancellor George Osborne, consultancy PwC also called on companies to seize the opportunity and guarantee that their pension arrangements are future-proof and aligned with the new framework, set to be launched in 2012.
Towers Watson welcomed the news of NEST's continued existence, arguing that the government might otherwise have had to exempt small employers from its auto-enrolment plans.
Paul Macro, a senior consultant at Towers Watson, warned that pensioners could be deterred from using NEST due to the fees it must charge savers to repay government loans.
He added that the 2012 start date was "something of a fiction".
"The next question is how quickly the government wants its loans to NEST to be repaid," he said.
"The current plan to charge members £2 for every £100 paid in so the loan can be repaid quickly may deter people from saving in NEST altogether."
He added: "The official 2012 start date is something of a fiction because it only applies to a handful of employers.
"The real significance of this announcement is that employees due to be enrolled between 2013 and 2016 won't see this pushed back any further."
However, NEST chief executive Tim Jones was more positive about the news and the organisation's future, saying it would provide a "straightforward solution" to employers.
"The work we have been doing over the summer has ensured NEST is now really taking shape and will be ready to launch in low volumes in 2011," he said.
PwC also welcomed Osborne's announcement that NEST and auto-enrolment would continue as planned.
Marc Hommel, a pensions partner at PwC, said companies were seeing the 2012 changes as an opportunity to review their future retirement saving strategies.
He added: "All near-term changes employers make to their pensions and wider reward arrangements - for example, in relation to the new pensions tax rules or the closure of final salary schemes - must have an eye to 2012 to ensure they are future-proofed."
However, other measures announced in yesterday's Comprehensive Spending Review (CSR), such as the increase in contributions made by public sector workers, have been criticised as nothing more than a temporary solution.
The planned 3% per annum increases in contributions "won't make any difference" to the level of funding needing to be contributed by the taxpayer for pensions being promised now, Towers Watson said.
Rash Bhabra, head of corporate consulting at Towers Watson, said the additional £1.8bn raised by the move should be seen as "a short-term sticking plaster" pending changes to the terms on which pensions are promised.