HM Treasury has agreed in principle to give NEST a £329m contingent liability guarantee in the event of the master trust's wind up or closure.
According to an announcement from the Department for Work and Pensions (DWP) yesterday (23 January), this is the amount which was estimated by NEST, and accepted by The Pensions Regulator (TPR).
In order for the master trust to be able to operate, it will need to apply for authorisation by the end of March under the regulator's regime which came into force on 1 October last year.
If there is no objection from MPs in the next 13 days to undertake the contingent liability, the DWP will be able to provide the required ‘letter of comfort' to assure TPR that NEST is sufficiently financially stable to cover the potential costs of a wind-up, should that be triggered without imposing costs upon members. Specifically, without the letter, NEST, would be unable to meet the financial sustainability criteria as set out in TPR's authorisation requirements.
However, if an MP signifies an objection by giving notice of a parliamentary question or motion relating to the minute, or by otherwise raising the matter in the House of Commons, final approval would be withheld pending and examination of the objection. If this was the case, NEST could be at risk of not being able to apply for authorisation, if the parliamentary timetable did not allow a debate before the authorisation deadline.
Although, industry experts have told PP that this would be a very remote possibility. Aries Insight director Ian Neale said it is "highly unlikely that any MP will be so mischievous" as to reject the proposal.
He added: "There can hardly be any sensible objection - as to put the whole automatic enrolment (AE) program at risk by raising an objection. There is strong cross-party support for AE and NEST is the lynchpin of the program."
Former pensions minister and Royal London director of policy Steve Webb agreed, and noted that there is "not even the slightest risk" of an objection and "no MP would object to NEST continuing to operate".
The pair also noted criticism of the government for not addressing NEST's financial position sooner.
Webb said it "should not have got to this point", and this should have been addressed "three months ago". Neale agreed and said it was "highly regrettable" that this necessity has been drawn to MPs' attention at such a late stage in the mater trust authorisation window.
Commenting on the announcement, NEST director of customer experience Mark Rowlands said that, despite the need for this contingent loan, the scheme was "well on track to becoming a self-financing master trust, driving improvements and innovation across the industry and helping millions of people to enjoy a better retirement".
A TPR spokesperson said the aim of the authorisation regime is to drive up standards and protect members by ensuring a master trust has enough money to cover the costs arising from a wind up event.
"We will consider the proposals and circumstances of each scheme's application on a case-by-case basis."
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