The Department of Work & Pensions has outlined a series of measures that would radically overhaul the National Employment Savings Trust to bring it in line with pension freedoms.
Most notably, the 30-page call for evidence proposes allowing Nest to offer “a range of decumulation services for its members”, in response to the sudden move away from annuitisation in favour of drawdown products.
The rules governing Nest were written before chancellor George Osborne introduced pension freedoms in 2015, and the DWP stated this has prevented the scheme for offering products appropriate to the new regime.
“Due to legislative restrictions, Nest cannot offer the choice to its members that take full advantage of the pension freedoms, other than expecting/signposting members to transfer elsewhere,” the paper stated.
“Government is keen to encourage the industry to harness the flexibility, freedom and choice offered to consumers to create innovative new products and solutions that can meet a wide range of consumer needs.”
Nest itself has already begun to design a post-pension freedoms default drawdown solution, which has called its “retirement blueprint”. However, as yet it is only a plan and would need a change in legislation if it were to come into effect.
Nest chairman Otto Thoresen accepted the scheme was set up in a world where most members were compelled to annuitise.
Nest now needs the flexibility to develop and deliver different approaches, to give our members real choice within the new freedoms and to recognise that working patterns are changing fundamentally. Otto Thoresen“Nest now needs the flexibility to develop and deliver different approaches, to give our members real choice within the new freedoms and to recognise that working patterns are changing fundamentally,” he said.
“Allowing savers to continue contributing and drawing from their pension pots within a trust-based framework, providing guidance and support for accessing retirement products within schemes and from the open market will be key to promoting confidence in saving and promoting confidence in retirement.”
The launch of the DWP’s consultation paper provoked a mixed response from the industry.
Tom McPhail, Hargreaves Lansdown’s head of retirement policy, welcomed the proposals.
He said: “With pension freedom the rules of the game changed, so the services offered by pension providers needed to change too.
“Commercial pension providers have all already adapted to reflect this; Nest now needs to do this too.”
Self-invested personal pension provider AJ Bell, however, was critical of the proposal, with senior analyst Tom Selby describing it as “mission creep” to expand Nest into a state-backed open market individual pension provider, in an already competitive market.
“Nest was set up to deal with a clear market failure in the pensions accumulation phase - namely that the insurance industry was unwilling or unable to serve the automatic enrolment market - and particularly those with small pots.”
The paper also proposed opening Nest to individuals and relaxing the rules on bulk transfers.
The consultation period closes on 28 September 2016.
james.fernyhough@ft.com
