The mobile phone is the best way to communicate with the Nest target audience says Ian McKenna, director of the Financial Technology Research Centre
Under the latest proposals the government have decided to exclude small employers until after 2017. In other words Nest will focus on deconstructing schemes that already work rather than helping those who are most disadvantaged. By postponing the inclusion of small employers Pada has found a convenient way of avoiding the biggest challenge of any such scheme, addressing the needs of the millions of employees of hundreds of thousands of small businesses.
To me this is just another reason why it is time to scrap the whole charade. If we want to really help those who cannot help themselves we need to be revolutionary, not evolutionary. Setting up a set of priorities that will focus initially on cannibalising existing schemes and encouraging employers to dumb down their contribution levels cannot be the right way forward.
What is needed is a brave and bold solution. The challenge is to help people who are outside the normal banking system, who do not have a bank account or even a debit card. Ironically an ideal platform exists to do exactly that; one device is virtually ubiquitous in modern Britain. It already has an established cash transmission mechanism which daily allows thousands of customers to make payments without the need to engage a bank account. It can be used to buy concert and cinema tickets, pay parking meters and replace small change to buy low value items. I speak of the humble mobile phone.
As someone who is spending an increasing amount of their time looking week after week at ever more creative and sophisticated solutions from life offices, platforms, IFAs, EBCs and a range of other organisations delivering services that can inform and educate the members of defined contribution schemes, it is glaringly obvious that there is simply no need to offer Nest arrangements to these consumers. The people who do need help are the great unbanked, those who lack the competency to manage their own financial affairs in a way in which a bank or credit card company would find acceptable.
If government wants to demonstrate to voters the value of Nest accounts, why not be able to send them a regular message showing them the value of their account? Mobile platforms are also ideal for downloading educational material to help consumers understand how their account will work.
In reality what will almost certainly happen is that what may well become known as the ’Loch Nest Monster’ will establish itself by undermining the provision that large numbers of employers already make for their employees and then use the revenue it can steal from working schemes to subsidise the cost of delivering services to the financially disadvantaged like any other massive outsourced public sector IT project. If Nests are really such a good idea they must be forced to prove themselves as a way of achieving pension provision for the great unbanked before they can be allowed to undermine a system that already works.
The lack of the ability to transfer money in or out of Nest accounts must also be a worry. If the scheme is really going to be such good value for members why should citizens not have the ability to transfer elsewhere if it suits their personal circumstances. Personally I am at a loss to understand why so many large pension providers and the industry as a whole keep making positive noises about this scheme. Is it not time to stand up and shout from the rooftops that it is going to amount to robbery of existing DC pension pots to an almost unprecedented degree?
Under the current proposals investors in existing DC schemes, whose contributions are redirected,will inevitably end up subsidising new savers via Nest.
It is too easy to let the administrator of the new accounts take the soft option of fixing things that are not broken, any government that wants to deliver a real change to the nation’s savings habits should insist that the new arrangements address the needs of those least able to provide for their own future before creaming off profit from group arrangements where contributions are already being made. Let’s fix what is broken, not what is not.