Auto asphyxiation: Nest should be free to compete now

Jon Cudby

Often when analysing an argument, you can glean more from the identity of the people arguing each side than you can from what they are actually saying. I’ve kept this in mind throughout the debate surrounding Nest and the savings cap under which it has been forced to operate since its inception.

I say ‘debate’, but as far as I can see, the only voices I have heard supporting the restrictions are from representatives of companies that are themselves trying to stake a place in the auto-enrolment (AE) marketplace. Their self-interest is so overwhelming that their views should probably be precluded from any rational debate. Asking their opinion is tantamount to checking with a chicken whether or not it thinks you should stock up on Paxo.

AE is a rarity among government policies: a long-term solution. It may not be ideal, but in terms of creating retirement provision, it will probably become the most significant piece of pensions legislation since the creation of the state pension.

Article continues after advert

A Labour policy, continued by the Tory/Lib Dem coalition, the only people who will argue against it are employers who see it as a new expense. Again, it is not hard to see a degree of self-interest motivating these gripes.

AE is about doing what we can to ensure everybody has a chance of saving for their retirement, that nobody is left behind. Nest will play a vital role in this new landscape. Without it, auto-enrolment is not a universal solution. However many private sector providers enter the market, it is only Nest that is duty-bound to accept everybody, which makes the antipathy towards it from some of the private pension providers attempting landgrabs in the AE space all the more bewildering.

These established providers can not have it both ways. If they want the right to reject potential customers, Nest needs to be there to pick them up. If we are not to develop an underclass in retirement, Nest needs to be able to offer those it does pick up a pension as good as those on offer elsewhere. It needs to compete without restriction to offer a viable business.

If AE is about fairness and equal opportunities for all, surely that fairness should extend to the providers. Instead, Nest has had to operate and attract business while being prevented by law from offering the same service as its supposed competitors.

Yet still those competitors and their lobbyists have argued - successfully for several years - that the restrictions should stay in place.

AE is not a perfect solution; for many individuals it will be too little, too late. Critics are keen to wheel out emotive images of minimum wage earners in their 50s, missing out on pennies from their take-home pay for the final years of their working life just to end up with an inadequate pension pot that barely scrapes four figures.

It is not a huge leap to imagine that there will be a significant overlap between those individuals for whom that is true and those that the big established pension providers do not want to take on. So, while bemoaning the fact they will retire with a relatively small pot - which ignores the fact they have still got some benefit from employer contributions - legislation is restricting their ability to save more to tackle the issue.