Advisers need to understand how and where Nest can earns its place in their advisory kit bag, says Helen Dean, managing director, scheme development at Nest
Even with automatic enrolment just over 12 months away, Nest continues to have to myth bust about what we are and what we’re not.
As a new pension scheme, and with automatic enrolment not yet introduced, this is understandable, but one subject that needs particular attention is how Nest can earn its place in your advisory kit bag.
Let’s start with what we’re not: Nest is not exclusively for small and micro employers. While Nest can be used by the very smallest firms, is has also been designed for medium and large employers.
This isn’t just about Nest having a public service obligation to accept any employer that wants to use us to meet their enrolment duties although we do or the build and design process the scheme has gone through in order to be a qualifying scheme fit for all sizes and sectors.
We have tested our systems with firms of all shapes and sizes. It’s also about the way that employers and EBCs are telling us they will use Nest.
Many EBCs have been in contact with Nest throughout the development of the scheme. For example, just recently Nest has spoken at events hosted by Aon Hewitt, Jardine Lloyd Thompson and our chair Lawrence Churchill will speak at LCP’s annual conference later this year.
As we have got closer to 2012, increasingly many EBCs and corporate advisers have been thinking about how their clients might use Nest and developing case studies to illustrate that.
Nest is a ’pot for life’. It’s a case of, ’have Nest, can travel’
Just one example is Punter Southall. One of the case studies it has developed is of a hypothetical industrial manufacturing firm a long-established organisation that has a variety of existing pension schemes as a result of past mergers and takeovers. It has 2,500 employees, which we can think of as falling into two groups with different characteristics.
The first group includes 400 people with an average salary of £40,000 and includes a few people earning in the region of £150,000. This group has low staff turnover and 90 per cent contributing into the current pension scheme offered for that grade of staff.
The second group is the majority of the organisation’s staff: 2,100 people earning on average £25,000 including overtime. Turnover is around twice as high as it is for the first group of employees and only 25 per cent of this second group contribute to the existing stakeholder scheme currently nominated by the employer for them.
The group finance director is thinking about how to respond to the new employer duties and has asked Punter Southall for advice.
Punter Southall suggests that for the group of employees on higher salaries, the firm may decide to offer a group personal pension with the addition of a self-invested option targeted specifically at the directors and more senior staff.
Private providers are likely to be able to offer the first group very competitive terms because it features relatively high contribution rates, above average salary levels and low turnover rates.
For the 2,100 employees in the second group, Punter Southall suggests the employer may decide that Nest is the most appropriate solution for a number of reasons.
The fact that Nest is a ’pot for life’ could be of particular importance for this group. Nest is a multi-employer occupational scheme, so if a worker leaves, for example, to join another employer that uses Nest, they take their pot with them.
This works for the member because they can build up savings in one pot despite having multiple employments, but also works for the employer as they won’t have to administer the pot of someone they don’t employ anymore. So it’s a case of, have Nest, can travel.
Another reason is Nest’s low charge broadly equivalent to 0.5 per cent for most savers and the fact it’s been designed to be easy to use with most transactions being carried out online. This helps keep costs low for employers as well as savers.
Employers have told us, as have other advisers, that Nest can be used in other ways too on its own as the sole scheme, or employers could decide to use Nest as a foundation scheme, with workers transitioning to a GPP, for example, once they’ve attained a certain grade or period of service.
As advisers you need to understand where Nest fits in. Get the facts about Nest at www.nestpensions.org.uk