Govt should let Nest offer decumulation products

Written by Theo Andrew
05/04/2018

The government should allow Nest to provide decumulation products in order to drive competition from other providers, the Work and Pensions Committee has said.

According to the Pension freedoms report, published today, 4 April 2018, Nest, the state-backed pensions provider, should be able to offer a drawdown pathway which may drive “better retirement outcomes”, by forcing other providers to offer greater value, or risk savers switching to Nest.

In July 2016 the government concluded that Nest should not be allowed to provide decumulation services “at this time”, as part of its consultation on the future of Nest, but agreed to revisit the decision if the market became out of skew with Nest members.

The report said: “Under the existing framework, all those members will be required to take active decisions about their life savings at retirement, many after a career of passive saving. Nest is currently highly restricted in the support in can offer those members at retirement as it cannot offer decumulation products.”

The Committee noted that concerns on whether Nest may hinder competition in the market would carry greater weight “if there were evidence of a functioning market currently”.

It added: “We recommend that the government allows Nest to provide decumulation products from April 2019, provided it remains assured of Nest’s ability repay its start-up loan. This should include establishing a default drawdown pathway, in line with our wider recommendation.

“In keeping with the spirit of pension freedoms, savers would remain entitled to move their money wherever they wished.”

Despite this, The People’s Pension head of policy, Andy Tarrant, would be concerned if a government subsided provider would be able to allowed to enter competitive markets.

He said: “We believe Nest should only be allowed to offer retirement products if it meets actual demand among its current members, its offering is economically viable without government subsidy, and it can provide a superior product to anything available on the market.

“If other providers can offer better products, Nest should signpost its members to those providers when they hit retirement.”

The government's consultation found that although Nest has been influential in the auto-enrolment market place, there was “no immediate need” for Nest to be able to offer a drawdown product.

Royal London director of policy, Steve Webb, argued that Nest members currently have a pension pot of £500, and “you are not going to buy a drawdown product for £500”.

According to Nest, 34 per cent of its five million members “incorrectly believe that Nest will pay them a regular income when they retire”.

Hargreaves Lansdown, head of retirement policy, Tom McPhail, added: “It would be illogical and inappropriate to take them all the way to retirement and then abandon them without a decent range of retirement income options.”

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