DWP calls for evidence on Nest decumulation services

Providers offering drawdown products expressed concerns that the state-backed mastertrust’s entry into an already highly competitive sector might threaten competition.

But the move was welcomed by others, who said that auto-enrolled pension savers need a 'default' retirment solution.

If Nest creates a market-leading through-retirement solution that the others haven’t come up with, then why wouldn’t you look to put Nest on the end of your trust

Lydia Fearn, Redington

Launching the consultation this week, pensions minister Ros Altmann wrote: “I think the time is right to consider how Nest might evolve to respond to wider pension reforms."

The paper calls for evidence and views on “allowing Nest to provide decumulation services for its members” and “whether there is a case for expanding the opportunities for individuals, employers and other schemes to access Nest’s services”.

Debbie Gupta, executive director for corporate services at Nest, said the mastertrust would continue to focus on providing good outcomes for its members, including via retirement income solutions.

“We believe there’s a role for trustees, acting in their members’ interests, to help retirees access well-governed, flexible products, so even if they don’t take up advice they can still get good results from their pension pots,” she said.

The workplace scheme has previously released a blueprint detailing ideal retirement journeys for its members.

“But the question of whether or not our services are available to others is a matter for government; that is why they’ve issued a call for evidence,” said Gupta.

A step too far?

Providing a drawdown service for Nest’s own members, some of whom are the least engaged with their savings, is entirely appropriate, according to Tom Selby, senior analyst at AJ Bell Investcentre.

“Why should you have to transfer to someone else if you’re happy with the scheme and happy with the provider?” he said.

But several figures in the drawdown and mastertrust sectors raised concerns that Nest’s entry into the market might distort competition, and even clash with EU state aid rules.

“If you combine them having their own drawdown offering with allowing individual member transfers, you effectively create a state-backed competitor in a market that’s already competitive,” said Selby.

He urged the DWP to identify a gap in the drawdown market before changing its policy on Nest.

Scale is key to successful provision

Others felt that allowing small trust-based DC schemes to use Nest services would provide members with access to a level of technological innovation only currently available to large-scale providers.

The mastertrust last week launched its Insight unit, aimed at improving engagement with default members and driving better retirement outcomes, in part through technological development.

“A trust doesn’t necessarily want to look after a member until death, but they do want to do what’s best for the member,” said Lydia Fearn, head of defined contribution at consultancy Redington.

She said Nest’s focus on technology and engagement would keep costs low while providing important guidance to members.

“If Nest creates a market-leading through-retirement solution that the others haven’t come up with, then why wouldn’t you look to put Nest on the end of your trust?”

Kate Smith, head of pensions at Aegon, agreed that scale was vital to success in workplace pensions, but said there are many equally innovative retirement products already on the market.

“It’s just probably not as visible because Nest are very good at promoting what they do,” she said.