It has published a 51-page report, which looks into the success so far of automatic enrolment and concludes the process has gone well to date.
But it raises concerns about issues that might arise in the future, including the risks presented as auto-enrolment moves on to smaller businesses and the challenges Nest faces if it is to become self-sustaining.
The report said that in the 12 months to 31 March 2015, Nest reported income of £18.5m and incurred expenditure of £98.7m, with the funding deficit being met by a £387m loan from the department for work and pensions.
It said: “Although Nest will grow its funds under management as enrolment and contributions increase, its funding model is inherently uncertain.
“As a simple illustration, for Nest to have been able to meet its costs in 2014/15, it would have needed to have about £20bn in funds under management.
“Given the government’s stated aim that Nest Corporation should be run on a not-for-profit basis and repay the department’s loan in full, it will therefore need to grow its assets under management significantly from the £420m in March 2015.”
58,000 employers have enrolled 5.4m workers between October 2012 and August 2015.
£20bn in FUM would have been needed for Nest to meet its 2014/2015 costs.
DWP met Nest’s funding deficit with £387m loan.
Opt-out rates are lower than expected.
Between January 2016 and March 2018, the number of employers reaching their staging date will go up tenfold, reaching an average of more than 100,000 a quarter.
While the report found auto-enrolment has been going well so far and is on budget, it also warned the move to smaller companies next year presents “operational risks”.
Sir Amyas Morse, the comptroller and auditor general at the National Audit Office, said: “The volume of smaller employers will impose significant pressures and DWP will need to ensure that more widespread enrolment translates into higher retirement incomes.”
Frank Field MP, chairman of the commons work and pensions committee, said: “Small and micro employers face different challenges to the larger employers that have already enrolled. We will consider whether enough has been done to support smaller employers with their obligations, and anticipate challenges for these employers and make recommendations to improve the process.”
On the back of the NAO report, the Public Accounts Committee announced on 9 November that it was launching an inquiry into auto-enrolment.
In a statement, the PAC said the inquiry would explore the risks of registering smaller employers and how DWP ensures that more widespread enrolment translates into higher retirement incomes.
Right to reply
Richard Lockwood, executive director of finance at Nest, said: “The exact length of time it will take to achieve the level of assets under management required to repay the loan and become self-funding depends on a number of factors that are difficult to estimate until AE is fully implemented.”
A spokesman for the DWP said: “As the NAO makes clear, the focus now is to make sure hardworking people at every type of employer get to enjoy this major financial benefit – a big challenge as well as a major opportunity.”