Today I will lay before Parliament a departmental minute describing a contingent liability of £329 million associated with the National Employment Savings Trust (NEST) Corporation.
Confidence in the long-term stability of the pension system is a prerequisite for effective participation and achieving secure incomes in retirement, which are at the core of Government policy in this area. For this reason, there is a distinct body of legislation about private pensions and a number of public bodies play important roles, including the NEST.
NEST was established by Government to support the policy of all employers being obliged to automatically enrol their eligible staff into a workplace pension scheme. NEST ensures that all employers have access to a low cost, high quality pension scheme.
The Pension Schemes Act 2017 introduced the definition of a “master trust” and the introduction of a robust new authorisation and supervision regime to ensure that master trusts being used for automatic enrolment are safe for the nearly 10 million people now saving in these schemes.
To be able to operate in the pensions market as a master trust, schemes, of which NEST is one, are required to meet five authorisation criteria prescribed in the Pension Schemes Act 2017.
One of the criteria is that the scheme must be financially sustainable and that in the event of a triggering event, an event that would put the scheme at risk of needing to wind up, the scheme must hold sufficient financial reserves to cover its gradual closure without putting these additional costs on to the scheme members.
As NEST is currently funded through a Government loan and, therefore, holds no financial reserves, the Pensions Regulator, which oversees the authorisation process, has suggested a “letter of comfort” from Government could provide a solution, which for Government accounting purposes is described as a contingent liability.
The letter confirms that, in the remote possibility of a triggering event occurring, Government would fund NEST through to closure and meet any one-off associated closure costs. This gives a remote contingent liability of £329 million. The expected loss as calculated by the Department is £16.45 million (based on the liability multiplied by risk).
DWP as sponsoring Department will manage the governance and risk associated with the contingent liability.