Government decision on NEST will leave pensioners at risk from scams, says TUC
The TUC has expressed concern at the government’s announcement today that the state-backed National Employment Savings Trust (NEST) will not be allowed to offer retirement income products.
More savers are coming to retirement with defined contribution pension pots. But following the ‘pension freedom’ changes of 2015, most face the choice between cashing in their savings or expensive ‘drawdown’ products from insurance companies that risk them running out of money.
The TUC says savers need easier access to products that provide them with a secure income in old age. To meet this need, NEST had started developing a blueprint for retirement income services. However, the government announced today that it would not allow NEST to offer such products.
TUC general secretary Frances O’Grady said: “It is deeply disappointing that ministers have caved in to vested interests.
“Pension savers have been ill-served by the traditional pensions industry for decades, being shoe-horned into inappropriate products, often with high fees that have left them worse off.
“Those reaching retirement in the coming years desperately need easy access to suitable, good-value products to see them through their old age.
“The announcement that ministers won’t allow NEST to help savers who need it means the risk that government just stands by while more workers reaching retirement fall victim to rip-off products and outright scams.”
By contrast Tom Selby, senior analyst at AJ Bell, says: “Unleashing a state-backed monster into the already competitive drawdown market without first compiling evidence of consumer detriment would have been a mistake. Clearly if there is proof of market failure in any industry the Government should consider stepping in, but that case has not been made.
“The Government is right to keep the embryonic pension freedoms market under review and if it becomes clear those on low incomes have too few options, it should consider intervening. Clearly the world has changed since the pension freedoms were launched and it is vital all savers are catered for in this rapidly developing market.”
Kate Smith, head of pensions at Aegon, commented: “We welcome the Government’s decision not to build an in-house decumulation solution as this would have been premature while the private sector market is still developing. Only two years on from the pension freedoms, the market is still young and is already innovating to deliver retirement solutions to all sectors of the market. Currently NEST members’ pension pots are very small, and this is likely to be the case for some time. For the foreseeable future, most members will seek to cash in their NEST pots rather than buy a retirement income product such as drawdown or an annuity, unless they have pension savings elsewhere.
Build on existing provider expertise
She added: "We strongly believe that rather than NEST building its own retirement income solution at taxpayers’ expense, it should capitalise on existing pension provider expertise. It could do this by setting up a panel of providers offering a suite of retirement income options, including drawdown, drawdown with guarantees and annuities, allowing members to access the best in the market.
“From April, there will be relaxation in NEST rules including the removal of the contribution cap, and allowing it to make and receive transfers. No further significant changes should be made to NEST until it reaches its breakeven point and is less reliant on the taxpayer.”