As plans to introduce auto enrolment through the National Employment Savings Trust (NEST) continue to be considered, there are signs of growing polarisation of opinion over the benefits of such a scheme, as highlighted between Pauline Skypala’s article in the FT this week ("Why proceeding with Nest is crucial") and Penrose’s recent annual survey on the future of the investment industry.
Next month, the Government will announce its conclusions following a consultation period on NEST and whilst bodies such as the NAPF and Association of British Insurers see potential benefits, notably its provision of a low-cost scheme for those on middle-low incomes, the Penrose survey (targeting senior investment and pensions industry figures) suggests that the vehicle simply does not make adequate provisions in terms of savings for its members. The Conservatives have argued that the scheme is superfluous, as suitable infrastructure to deliver pensions to the target group already exists. Interestingly, just 1.9% of survey respondents saw NEST as being affordable and practical.
Although it is generally accepted that auto-enrolment may be adjusted, but not discarded completely, there are growing concerns among its advocates that such amendments could ultimately lead to its demise. One possible solution is to effectively privatise NEST, whereby existing schemes would expand to enrol all employees, without the intervention of the Government.
The main stumbling block lies with the target audience that NEST seeks to help. Many low-middle income households don’t see pension saving as a financial priority, or simply can’t afford to contribute a sufficient amount towards a pension in order to make it worthwhile. The result of lower contributions ultimately leads to higher costs for providers, limiting the viability of privatising the scheme.
Assuming that NEST does go ahead, however, it will at the very least raise awareness of an increased need to save towards retirement. But as it stands, NEST is still an initiative that brings as many, if not more, pessimists than it does proponents.