The National Audit Office’s recent report into the progress of auto-enrolment is a welcome reminder of what has been achieved to date. And 5.5m workers are now saving for their retirement thanks to the hard work put in by the government, the regulator, industry professionals and employers.
However, while there are many successes to applaud, few would argue with the NAO’s conclusion that there are still challenges to come. We are only in the foothills of staging small employers. There will be big peaks as 1.8m employers enrol their workers up to 2018. The NAO has suggested the numbers involved would increase pressure on National Employment Savings Trust. Is that true? Yes. Are we ready? Yes. But can we do this alone? No. That is where advisers come in.
In our view, helping small and micro employers meet their duties means seeing things through their eyes. Instead of asking them to read up on pension administration and attend courses on pension compliance, we believe we should modify our approach to fit their needs.
Employers want enrolment to be simple and hassle-free, or to have the ability to pass the administration to someone else so that they can get on with running their business. From the very beginning, we have strived to make Nest straightforward to use. A lot of our employers tell us it takes just 10 minutes a month to make contributions. But we’ve also continued to develope tools and services to make it even more straightforward.
We have evolved our systems in two ways: to help employers self-serve quickly and efficiently, or to allow them to outsource their AE administration cost-effectively.
Although smaller employers may have had less contact with pensions, many deal with payroll in some shape or form. Therefore, we have worked with the payroll industry to understand how pensions and payroll can work better together.
The outcome is a new data integration process known as Nest web services. This lets payroll software-crunch all of the data needed for AE and send it across to Nest at the click of a button. One-click submission of key pension data from their payroll system will cut down on employers’ processing times. And because we have worked with leading payroll software providers, the service should be available to the majority of smaller employers.
Some have suggested that the introduction of payroll integration with pension providers means there is no role for advisers. In our view, which is backed up by what we are experiencing, that is absolutely not the case. We have had around 4,500 intermediaries sign up to Nest Connect, which enables advisers to manage AE for their clients. More than one third of employers using Nest are now being managed by an intermediary through Nest Connect. This shows that there is a big opportunity for advisers who want to offer pension administration services to their clients.
In fact, the NAO report identified that innovation, like Nest Connect and web services, will be essential to the success of AE.
As well as simplifying things for employers, and making sure they can easily get help from a third party if they need it, we have also focused on ensuring we have the right capacity in our systems. We are already managing on a significant scale, and have grown fast, from nearly zero to 2.5m members in just three years. At peak times we have managed more than 100,000 members joining in one month, and we handle more than 320,000 transactions a day on average. But there is more to come.
We plan well in advance and performance-test our systems regularly, so we know we can cope with future demand well in advance of each stage.
Although there is an inherent uncertainty in terms of exact number of employers that might use Nest, it is clear that employer numbers are likely to grow at a much faster rate than we have seen so far. This is a big challenge, but experience to date with small employers is encouraging. It is true they have simpler structures so processing is much more straightforward. But, essentially, we have been designed for scale from day one and are prepared to flex our capacity to meet demand.
We have had to put the hard work into developing our systems from the beginning for a very fundamental reason: Nest can not turn the demand tap off. We are the only scheme that has a legal obligation to accept any employer for AE.
Our legal obligation to be open to everyone has always been a critical part of the AE programme. When the policy was being developed, the private sector acknowledged that there would be a certain section of the market they would not be able to serve. Nest was put in place to ensure that all employers had a quality scheme available. And the importance of our role has been borne out over the last three years. Mlore than a third of our customers said other providers they had approached were unwilling to enrol their entire workforce, and 40 per cent of IFAs have told us that other providers would not write schemes for one or more of their clients.
That is why we think it is right that Nest should not introduce an employer charge. Imposing a charge simply does not fit with our public service obligation, particularly as it would negatively impact smaller employers the most, creating a barrier to entry and extra costs that many simply would not be able to afford. Does that mean then that Nest is second rate? Of course not. We are a well governed, multi-award-winning scheme, with seven awards in just the last year alone for the quality of our service, innovations like Nest Connect and our investment approach.
So what’s the future for Nest? Is it true that Nest is not sustainable in the long term? No. Although there is inherent uncertainty in trying to predict the future, the Pensions Policy Institute has estimated that Nest’s funds under management could stand at £200bn by 2050. That is comparable with some of the largest pension funds in the world.
Nest is filling the role set out for it and it is a vital one. We are really pleased with the progress so far. And with the help of advisers like you, we will continue to help employers comply with their AE duties as simply as possible.
Helen Dean is chief executive officer of Nest
Key points
Due to AE, 5.5m workers are now saving for their retirement
Helping small and micro employers meet their duties means seeing things through their eyes
Nest has grown from nearly zero to 2.5m members in just three years.
