OpinionJul 26 2013

Auto asphyxiation: Nest should be free to compete now

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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.

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.

And the admittedly high charging structure that is so often used as a stick with which to beat Nest is almost certainly driven by the cost of monitoring all contributions to ensure they do not exceed the £4,400 annual limit.

You might think then, that Steve Webb’s recent announcement that the cap is to be lifted would be cause for celebration? Not at all. A quick look at the detail reveals nothing more than a hollow victory that actually benefits the established providers.

Rather than remove the cap now, the restrictions will not be lifted until 2017, by which time the huge bulk of the AE market will already have been divided up. The smallest firms - those with 30 or fewer employees, have staging dates by which they must have an appropriate AE scheme in place that range from June 2015 to April 2017. And those are the employers who are most likely to be Nest’s bread and butter - not the prestige, big employers, but the smaller firms that, in many cases, won’t be able to turn anywhere else.

The only employees remaining to be auto-enrolled by the time the restrictions are lifted will be new starters. Nest will have been prevented from competing on a level playing field for the entire market for which it was created.

As taxpayers who have been responsible for funding Nest, it is in all our interests that it succeeds. Just because Nest will take the dregs that nobody else wants, it should not be restricted to that as an available customer base.