"Given its state subsidy, NEST should not be able to enter a functioning, evolving market on unequal terms. Any such move would be market distorting and should be avoided."
Respondents to a government consultation raised concerns that NEST retirement products could unduly distort competition and stifle innovation in an emerging area.
There were additional concerns that the tax-payer funding NEST receives could allow it to develop a service that others could not compete with. Some providers felt that this would be an over extension of NEST’s role, which should be focused on supporting accumulation of savings through automatic enrolment. A number argued that NEST would have to become regulated under the Financial Conduct Authority rules, which would further shift it way from its original remit as a workplace scheme.
Finally, some respondents also urged caution due to the costs associated with financing the development and delivery of a new retirement product, and questioned whether it would be commercially viable. Many respondents stated there was a potential for much higher costs in a retirement product due to the increased engagement with consumers, regulatory requirements and administration costs.
In its response, the government said: "Given the reassurance we received from the industry regarding their intention to innovate, Government does not propose that NEST should begin to offer additional decumulation options at this time. However, given the significant lead-in time to enable retirement products to be developed and launched, the Government will continue to keep NEST’s role in offering decumulation products under active review in light of market developments.
"We will continue to monitor the market, including reviewing the conclusions of the FCA’s Retirement Outcomes Review later this year. If it is clear that the market is not developing in line with the needs of NEST members, we will consider enabling NEST to offer a fuller range of solutions."
Gareth Evans, Head of Corporate Affairs at Royal London, commented: “It is right that Government has decided that now is not the time for NEST to offer a suite of retirement income products. The post ‘pension freedoms’ market is still in its very early days and there is certainly no evidence of market failure at present.
“Given its state subsidy, NEST should not be able to enter a functioning, evolving market on unequal terms. Any such move would be market distorting and should be avoided. NEST resources would be better deployed signposting to a source of impartial guidance and advice for their members who are seeking a competitive retirement income plan.”
