The National Employment Savings Trust (Nest) has been granted £329m in contingency funds by the government – with some commentators saying this could unfairly leverage its position.
Guy Opperman, parliamentary under secretary of state for pensions & financial Inclusion, yesterday announced he would ask Parliament for another £329m associated with Nest.
This was to fund new requirements under the rules for master trust authorisation, which Nest will need to abide by.
The Pension Schemes Act 2017 introduced the definition of a 'master trust' and the introduction of a new authorisation and supervision regime.
To be able to operate in the pensions market as a master trust, schemes are required to meet five authorisation criteria, including holding a capital buffer to withstand financial difficulties.
Mr Opperman said: "One of the criteria is that the scheme must be financially sustainable and that in the event of a triggering event, an event that would put the scheme at risk of needing to wind up, the scheme must hold sufficient financial reserves to cover its gradual closure without putting these additional costs onto the scheme members.
"As Nest is currently funded through a government loan and, therefore, holds no financial reserves, The Pensions Regulator, who oversee the authorisation process, has suggested a 'Letter of Comfort' from government could provide a solution, which for government accounting purposes is described as a contingent liability."
Opperman said in the remote possibility of a triggering event occurring, government would fund Nest through to closure and meet any one-off associated closure costs.
This gave a remote contingent liability of £329m. The expected loss as calculated by the department was £16.45m, he added.
The Department for Work and Pensions would manage the governance and risk associated with the contingent liability.
Nest, the pension scheme set up to facilitate the government's auto-enrolment project, has already been given £622.7m of taxpayer money to pay for the scheme’s set up.
Nest has more than 6.4 million members and currently looks after pension schemes for about 600,000 employers.
Darren Philp, head of policy at Smart Pension, criticised the government backing, saying it would lead to a stifling of innovation and an effective market.
He said while Nest had been central to the rollout of auto enrolment, it could not be allowed to unfairly leverage its privileged position.
He said: "While the news that Nest has got out of holding capital through a government guarantee doesn’t come as a surprise, the government needs to give some serious thought about Nest’s position in the market.
"Is it a private market participant or is it part of government?
"We’ve come a long way as an industry in recent times, but the time has now come for the government, Nest and the regulator to come clean about Nest's future role."
Tom McPhail, head of policy at Hargreaves Lansdown, also raised concern over competition in the market.