Earlier this week a group of pension scheme managers came together to discuss alternatives to NEST and establish what, in their eyes, a good pension provider should offer to employers. Pension Funds Insider reviewed the outcome with the meeting's host, Darren Jefferson from independent trustee and governance services provider Pitmans Trustees.

Attending the 'NEST Alternatives' meeting were pension managers of various large schemes; Kingfisher, Alliance Boots, HSBC Staff Pension, the AA and First Group. Between them they represent roughly one million employees with pension assets of around £30bn.

Their staff demographics might be varied, but they are all of a substantial size. So why have they decided not to consider NEST for their staff and what do they all want from the alternative service providers?

These schemes all have their own DC scheme in place and, perhaps with some tweaking here and there, they are ready to use these schemes if they need to when auto-enrolment becomes a requirement for them, which will be in the new reform's earliest stage for them.

But they are also looking at other alternatives and have now established a template of requirements that providers can consider when designing, or altering, their products, says Darren Jefferson, business development manager at Pitmans.

"We are trying to help everyone here, we can help the providers model some of the products to the needs of the schemes and this way help the marketplace. If this is better streamlined then it would bring the cost down and the savings can filter down to the employers."

One of the concerns about NEST was the charging, according to Jefferson . While the Annual Management Charge (AMC) will be relatively competitive when compared to traditional products on the market, the concern is with the other costs and not knowing what will happen from 2017 with contribution rises, for example.

"All added charges and costs could make the product relatively uncompetitive again. The larger funds which use consultancy firms are able to negotiate better terms on the market place," he explains.

The results

A variety of topics were discussed at the meeting, among them charges, communications, investment options and the protection of assets.

As far as charges go, the managers agreed that an AMC of between 0.35% - 0.4% was acceptable for passive funds and 'vanilla' products. For more complex products the managers said that an AMC of up to 0.7% would be acceptable. It was also agreed that there should be no upfront charges and that the charge should reflect the level of work expected of the employer.

On the communication theme, the managers agreed with a NEST approach of default online communications, however, as it cannot automatically be expected that all employees have access to the internet, print communications – marked 'crystal' for clear English – should be made available as well.

Jefferson says that many companies will look at this issue from the point of view of their own membership, "especially (as) with large organisations you cannot rely on assumption". "Some have no access to internet at the workplace and some do also not have it at home. Look at Kingfisher for example, which owns B&Q and have a lot of older staff working for them. They don't all have a PC or access to a PC or are computer literate, so there should be an alternative."

One surprise from the meeting was the high number of funds the managers thought was necessary as an offer. The pension scheme representatives expressed the need for 8-10 'core' funds, including an ethical fund, a lifestyle option that is reviewed on a regular basis, and a Sharia fund.

"We see that some have hundreds of funds available and 80% goes into the default," says Jefferson. "Collectively we felt that roughly 8 funds would be a good number. We are all different in our attitude to risk and we can address that this way."

Other matters that were discussed included the need for employers to brand their scheme, the duties employers should have within the scheme (purely collecting and submitting contributions) and decumulation. 

First published 03.11.2011

azeevalkink@wilmington.co.uk