It’s important to remember that NEST was established with a Public Service Obligation using State Aid Funds to address the concern that there would not be enough commercial providers to serve the low-earner and small company auto enrolment market.
Its role was to be a provider of last resort with the intention that it should complement, not compete or replace, private sector providers.
In reality, these concerns have not materialised as auto enrolment competition has been vibrant. There are at least 70 other master trusts and around 30 insurers operating in the market and NEST has been competing well beyond a provider of last resort.
The Public Accounts Committee report into auto enrolment published in January noted that NEST’s business model is complicated and its sustainability and ability to repay its loan to the taxpayer is uncertain as it depends on how the market develops and how successful other providers are.
This highlights an inherent conflict for government in both monitoring the competition angle and ensuring that NEST is able to repay its loan. It also highlights the need for NEST to become sustainable financially.
The government has created and funded the largest auto enrolment provider that is now considering using its unique funding advantages to potentially engage in more profitable activities that will extend well beyond the target group of its Public Service Obligation.
The government needs to think carefully about the consequences of allowing NEST’s role to significantly expand and the impact it would have on the future shape and competiveness of the market.”
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