NEST, the defined contribution vehicle set up to support auto-enrolment, will not be permitted to develop post-retirement products, the government has announced.
The government last year consulted on potential new powers for NEST, but in a document published this week the Department for Work and Pensions (DWP) said it was satisfied that there was sufficient innovation in the industry to cater for consumer demand for post-retirement products.
In 2015 the UK brought in new rules allowing consumers more flexibility with their defined contribution (DC) savings when they retire. Providers are working to come up with investment and drawdown products as alternatives to annuities.
“Given the reassurance we received from the industry their intention to innovate, government does not propose that NEST should begin to offer additional decumulation services at this time,” the DWP said. “However, we will continue to monitor the market, including reviewing the conclusions of the FCA’s retirement outcomes review later this year. If it is not clear that the market is developing in line with the needs of NEST members, we will consider the most appropriate response, including enabling NEST to offer a fuller range of solutions in the future.”
NEST’s own response to the government’s consultation set out a “blueprint” for a core retirement product. The DWP said it would encourage NEST to keep working on this with other industry players to aid product innovation.
Frances O’Grady, general secretary of the Trades Union Congress, criticised the DWP’s decision, saying it had “caved in to vested interests”.
“Pension savers have been ill-served by the traditional pensions industry for decades, being shoe-horned into inappropriate products, often with high fees that have left them worse off,” she said. “The announcement that ministers won’t allow NEST to help savers who need it means the risk that government just stands by while more workers reaching retirement fall victim to rip-off products and outright scams.”
NEST is expected to be one of the biggest pension schemes in the UK by membership when the auto-enrolment process is complete in 2018, the government said.
Meanwhile, the Work and Pensions Committee has published details of the Pensions Regulator’s (TPR) feedback to the committee’s review of defined benefit provision.
The review concluded last year with the publication of a document calling for TPR to have more powers – including the ability to apply “nuclear deterrent” fines onto sponsors if they do not fund their schemes properly.
TPR’s response had not been published previously, but the committee of members of the UK’s lower house made it public yesterday after the regulator earlier this week announced a £363m settlement for the BHS pension schemes.
TPR told the committee that it was prioritising speeding up its operations, as well as focusing more effort on how it monitors different types and sizes of pension schemes.
In a letter to the committee, TPR chief executive Lesley Titcomb said: “We note the Committee’s observations about the need for TPR to be nimbler. We can assure the committee that this is a key focus of our ‘TPR Future’ work and its review of our regulatory approach. However, we are not waiting for the outcome of that work and have already taken a number of actions to speed up elements of our work in relation to the funding of DB schemes and the use of our powers more generally. This will remain a priority for the foreseeable future.”
In a statement yesterday, Frank Field, chair of the committee, praised TPR’s work on BHS but emphasised that “had TPR been equipped and prepared to take a more active interest in BHS, earlier, we need never have gone down this path”.
“What is vital now is that the regulator follows up these promises of change with firm and sustained action,” he added. “We will be monitoring progress closely.”