Nest is recruiting for three new non-executive directors as it attempts to improve the diversity of its board, the master trust’s chair has told Pensions Expert.
In an exclusive interview, Brendan McCafferty – who joined Nest at the start of 2022 – admitted that the board was “still deficient” in its diversity, including the representation of black and LGBTQ+ directors.
McCafferty shared his thoughts on engaging savers during the cost of living crisis and on backing employers to have a role in encouraging pension saving among the workforce.
We need to represent our 11mn members in the complexion of who sits around our table
Brendan McCafferty, Nest
The former chief executive of Axa Insurance UK also described the picture for pensions among the self-employed as “awful”, although stopped short of calling for a compulsory element to retirement saving for this group.
Nest board members need to represent the membership
The recruitment process for the three new board members is under way, with Nest scheduled to host a webinar on November 29 to help inform potential applicants. Nest directors are appointed through a public appointments process.
It is hoped that three non-executive directors will join in May or June next year. Two directors – Clive Elphick and Mutaz Qubbaj – will leave the board midway through 2024. 
“We are still deficient in dimensions of our diversity, which worries me,” McCafferty said.
In addition to a lack of representation of directors from ethnic minorities and LGBTQ+ backgrounds, he also acknowledged a lack of diversity in age and the absence of directors who have disabilities.
“We want diversity around our table. We need to represent our 11mn members in the complexion of who sits around our table,” he said.
“We also want to find, if we can, one person with very, very good skills in the world of investment,” McCafferty added, noting that Nest is growing by more than £400mn a month in contributions. “It’ll be a £100bn enterprise by the end of the decade,” he predicted.
“We’re going to need to evolve the governance. It’s going to need to increase its sophistication and its capability, so we’re going to need that kind of experience around the table.”
Employers have a role to play
While Nest’s membership has grown steadily since the advent of automatic enrolment a decade ago, it is now operating during a cost of living crisis that is forcing a rethink among savers with regards to their pensions.
In October, the Pensions and Lifetime Savings Association revealed that one in five of the 112 pension schemes it had surveyed had received enquiries from savers about reducing or stopping their pension contributions.
In September, HM Revenue & Customs disclosed that just over 500,000 savers withdrew money out of their pensions during the second quarter of 2022, doing so on average two or three times.
The amount taken out over the three-month period was £3.57bn – up from £2.33bn in the first quarter – making it the highest quarterly figure since pension freedoms were introduced in 2015.
“It’s not lost on us that there is a dilemma. There will be people out there that are in debt, or going to get into debt, at the same time as contributing to a pension. We understand that,” McCafferty said.
He highlighted the difficulty of identifying those that are struggling. “The dilemma you actually have to confront is, well what would you then say to everybody and what would the consequence of that be?”
“You rapidly get to a place where, I believe, the best interests of the member is […] to rely on the fact that employers have a role here, to look after the welfare of their staff, and if part of that were to include members taking decisions to opt out, that is for them to decide,” he continued.
“We cannot insert ourselves into that equation – at least, in any easy fashion.
“What we can do, and what we’re very focused on, is what can we do around the periphery – can we signpost people to the right places for help?” McCafferty suggested, citing debt advice and the Money and Pensions Service.
“We have a great empathy for what people are going through. What we can say to those people is, we understand the worry and anxiety […] but let’s be clear that the one reassurance we can offer you is that by remaining in the pattern of contributing to your pension in Nest, you are protecting your future,” he said.
“While you’re grappling with problems today, in the future things will be better.”
Timing is not right for 2017 AE review
The government is yet to implement the recommendations of its 2017 auto-enrolment review, which proposed auto-enrolling workers from the age of 18 and abolishing the low-earnings threshold.
These changes were marked for implementation by the mid-2020s, although the cost of living crisis has prompted suggestions from some quarters that any attempts to expand the scope of auto-enrolment would be ill-timed.
McCafferty accepted that “there’s certainly a dilemma and on balance it’s probably not the right time to push through those changes”.
“We are clear that those changes do need to happen,” he continued. “We worry about, particularly, low earners and younger people ought to be saving […] stopping that from happening until people get to a certain age, I just think that’s a little odd.
“I think that policymakers know that, and the problem that we’ve all got is one of timing.”
Another area that is garnering policymakers’ attention is retirement saving for the self-employed.
According to the Department for Work and Pensions, the proportion of these individuals participating in private sector pensions dropped to 16 per cent in 2019-20 from 21 per cent in 2009-10.
The Pensions Regulator’s chief executive, Charles Counsell, and the All-Party Parliamentary Group on Financial Resilience are among those to have supported using the tax system to help the self-employed save for retirement.
Nest Insight launches emergency savings trial
Nest Insight, the research arm of the Nest master trust, has launched an emergency savings trial with financial wellbeing provider Wagestream to examine employee financial resilience and the impact of different nudges to encourage people to save.
The idea, which has also been supported by former pensions minister Sir Steve Webb, could involve using tax returns to default the self-employed into a pension with the ability to opt out, in a similar way to how auto-enrolment works.
“We would probably stop short of saying that a degree of compulsion is appropriate,” McCafferty said.
“It’s very difficult to understand individual circumstances and apply rules to that. But certainly, we think that the remedies probably do involve HMRC and signposting going on, and routing going on through that journey.
“The statistics around long-term savings and pensions in the self-employed sector [are] awful, and the country is storing up a problem for the future with that,” he added.
