The Government has agreed to provide a contingent liability of £329 million to fund the National Employment Savings Trust (NEST) Corporation so that it can continue to operate in the pensions market as a master trust.
The Pension Schemes Act 2017 introduced a new authorisation and supervision regime for master trusts being used for automatic enrolment purposes – nearly 10 million people are now saving in these schemes. To be able to operate as a master trust, schemes are required to meet strict authorisation criteria.
One of the criteria is that the scheme must be financially sustainable and must hold sufficient reserves so that, in the event of it being at risk of needing to wind up, the cost of this would not fall on scheme members. NEST is currently funded through a Government loan and holds no financial reserves. Therefore the Pensions Regulator, which oversees the authorisation process, had suggested that a “letter of comfort” from the Government could provide a solution.
The letter confirms that, in the event of NEST having to wind up, the Government would fund it through to completion of the wind up and meet any one-off associated costs. This gives a contingent liability of £329 million. The DWP will manage the governance and risk associated with the contingent liability.