PRESS RELEASE: NEST start-up costs could lead to ultimate failure says Pitmans Trustees Limited

Following the NAPF’s comments yesterday, Pitmans Trustees Ltd (PTL), a leading independent trustee and governance services provider, has added that volume of charges is also important. PTL has said today that the millstone that NEST has created for itself in relation to its start-up costs could be the noose that hangs it.

Richard Butcher, Managing Director or PTL commented: “NEST has fans, but it also has ‘anti fans’ who intend to vote with their feet, by opting out. The perceived advantages of doing so include more control, more influence and an ability to brand the alternative in their own way, thus winning brownie points with employees.

“Our informal research amongst larger employers indicated that 100% of them are planning to opt out. In addition, Association of Consulting Actuaries research indicates that up to one third of employees could opt out. The eventual numbers are unlikely to be this high, but it is clear that opting out will be wide spread. A large number of new master trusts have been launched over the last twelve months and more are in the pipeline. But why does any of this matter?  It matters because NEST has a large loan to fund its start-up costs. This loan is being recovered through a charge of 1.8% against contributions paid into it. The duration of the loan is ‘until it's repaid’. By NEST’s own estimates this is expected to be at least 20 years. If, however, large numbers of employers and members opt NEST’s pricing model may be flawed thus even that period may be optimistic.

“In the meantime, the commercial rivals to nest will not be applying an up-front charge (albeit that they may be applying a larger annual management charge). Thus is born a vicious circle: which employer will opt for NEST where their employees may be paying higher charges for an indefinite period of time? The level and the uncertainty will cause more to opt out, leveraging NESTS repayment problem, increasing the unknown duration, causing more employers to opt out.

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