Auto-enrolmentMar 29 2018

Brexit could impact Nest funding

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Brexit could impact Nest funding

The UK exit from the European Union can have an impact on the National Employment Savings Trust (Nest), which is a government-backed workplace pension scheme.

This is due to the fact that the scheme creation was approved by the European Commission under state aid rules, and the provider receives a public service obligation offset payment from the Department for Work & Pensions (DWP), also approved by the EC.

This is a grant payment for the provider's public service obligation to accept any UK employer that wishes to use the scheme to meet its auto-enrolment duties, which "may need to be reassessed" with Brexit, the DWP stated in a tailored review of Nest corporation, which was published yesterday (28 March).

In 2016 to 2017, Nest received £17m under this grant payment, according to the report.

FTAdviser understands, however, that the government has no plans to change Nest's public service obligation after the UK leaves the European Union, as it is expecting existing state aid approvals will be retained to ensure these can continue to be granted lawfully after Brexit.

Richard Lockwood, Nest chief financial officer, said: "We do not expect any changes to our public service obligation."

The provider also receives a grant-in-aid for costs that it incurs by being a public body - £450,000 in 2016 to 2017 – and a loan funding from the DWP - £79.5m in the same period.

Overall, Nest had a total funding of £112.4m during last fiscal year, the highest since 2013.

While the public service obligation offset payment and the grant-in-aid will continue to be paid by the government to Nest on an ongoing basis, DWP's loan will end when the provider becomes self-sustaining, funded from the charges paid by members – which stood at £15.2m in 2016 to 2017.

In April 2017, DWP wrote to the House of Commons Public Accounts Committee, informing that as of March 2017, the total value of the loan stands at £539m.

The estimated date at which the scheme will be able to cover its operating costs from pension scheme member charges is 2026 – when the loan balance is expected to stand at £1.2bn and the forecast loan repayment date is 2038.

Nest is the largest auto-enrolment workplace scheme in the UK, having more than six million members.

Introduced in 2012, auto-enrolment has now reached nine million people, with opt-out rates of less than 10 per cent.

According to official figures, one million employers have now enrolled their staff into a workplace pension through auto-enrolment.

maria.espadinha@ft.com