DWP blocks Nest's plans for income drawdown

DWP blocks Nest's plans for income drawdown

The government has blocked a proposal by the National Employment Savings Trust to provide income drawdown products to its members.

The Department for Work and Pensions announced the decision today (2 March) in its response to a consultation on the future of the government-backed auto-enrolment provider.

But it stressed this decision was not permanent, saying it would keep the issue "under active review in light of market developments".

"If it is clear that the market is not developing in line with the needs of Nest members, we will consider enabling Nest to offer a fuller range of solutions," the DWP response said.

Nest first revealed its plans to create drawdown products in what it called its "retirement income blueprint", in mid-2015.

While the DWP was initially supportive of the blueprint, the industry claimed it was unfair to allow a state-backed provider to compete in a market that was not failing.

The DWP said its decision not to sanction the blueprint was based on the "reassurance" of existing providers "of their intention to innovate". 

The blueprint set out three building blocks for its retirement strategy: an income drawdown fund, a cash lump sum fund, and a later life protected income fund.

The DWP said it would not prevent Nest from continuing to explore decumulation, adding it had "received limited evidence that suitable hybrid products aimed at the mass market were available or in development at this stage".

"In preparation for the growth in consumer demand, we would hope to see a range of innovative new low cost decumulation products brought to market that provide an appropriate blend of simplicity, security and flexibility," the DWP said. 

"They should provide a retirement income for those low to moderate income savers who are newly saving or saving more as a result of the introduction of automatic enrolment."

AJBell senior analyst Tom Selby welcomed the DWP's decision to block Nest from entering the retirement market at this stage.

"Unleashing a state-backed monster into the already competitive drawdown market without first compiling evidence of consumer detriment would have been a mistake," he said.

"Clearly if there is proof of market failure in any industry the Government should consider stepping in, but that case has not been made."

He said the government was right to keep the "embryonic" pension freedoms market under review, and only consider intervening if the market fails.

Kate Smith, head of pensions at Aegon, also welcomed the decision. 

"We strongly believe that rather than Nest building its own retirement income solution at taxpayers’ expense, it should capitalise on existing pension provider expertise," she said. 

"It could do this by setting up a panel of providers offering a suite of retirement income options, including drawdown, drawdown with guarantees and annuities, allowing members to access the best in the market."