Labour MP claims Nest could avert 'pension scandal'

Labour MP claims Nest could avert 'pension scandal'

A pension scandal could be averted by a government proposal to provide low-income retirees with retirement income products, a member of the Work and Pensions select committee has said.

However, Labour MP Steve McCabe added not enough is known about the needs and behaviour of these low-income retirees.

He urged the National Employment Saving Trust - the government sponsored workplace pension scheme - to provide more information on this demographic.

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Speaking to FTAdviser, Mr McCabe said the long-term implications of pension freedoms were as yet unknown, but there was a danger they could have damaging consequences. 

"I have a horrible feeling that, with bad advice, people taking out too much money, and not preparing to pay for care, that there is a latent pension scandal down the road," he said.

He added he would consider suggesting that Frank Field, Work and Pensions select committee chairman, call Nest to give evidence to the committee on this issue.

The government is currently reviewing whether or not to extend Nest's remit beyond accumulation to allow it to provide its members with retirement products.

The suggestions has already attracted negative comments from the pension industry, with claims it would be unfair to allow a state-sponsored provider to compete with private players in a market that is not failing.

But in its own submission to the Department for Work & Pension's review, Nest claimed the majority of providers were focused on a "mass affluent" market - that is, on consumers with pot sizes greater than £100,000.

Nest stated it needed to develop retirement products for people with smaller pot sizes and no investment experience.

Mr McCabe shared Nest's concern for this low-income demographic. 

He said: "I suspect there are people on lower incomes, drifting through life struggling to get by, with the assumption the state pension will look after them."

He argued there was "a danger these people may end up making atrocious decisions" as a result of pension freedoms.

However, he said he also had sympathy with the private sector's fear that Nest's involvement would undermine competition, and lead to a "monolithic" provider with "no incentive to innovate".

Of the stakeholders that published their submissions to a consultation on the issue, the majority were either pension providers or firms with a commercial interest in the pension industry. Most of them opposed allowing Nest to offer retirement products.

Speaking to FTAdviser, former pensions minister Ros Altmann said: "I am sure [Nest's] competitors would love to see it prevented from offering decumulation products, so that they would have the chance to get any business transferred over. 

"But Nest did have some very innovative and attractive ideas for decumulation, so it could be a useful addition to the market."

However, she said Nest had cost "a huge amount of public money" and that its loan "keeps growing ever larger". 

Nest borrowed an extra £72.5m from the taxpayer in the 2015 to 2016 tax year, bringing total debt owed to the Department of Work & Pensions to £470m.