A spotlight was shone on the snowballing costs of the government’s workplace pension scheme today, after a senior civil servant warned it will not break even until almost two decades after it was formed.
In a letter to Public Accounts Committee chair Meg Hillier, Robert Devereux, the permanent secretary to the Department for Work and Pensions (DWP), said the government’s Nest scheme, which was launched in 2010, will only break even by 2026.
By then, a loan provided by the DWP will have ballooned to £1.2bn, from £539m now. Although there are a “number of uncertainties in forecasting the evolution of the loan balance”, Nest will only pay off the loan completely by 2038.
A document produced by the European Commission when it first approved Nest’s state aid suggested the largest possible loan it could require was likely to be £1.28bn over by 2048. However, Devereux's letter suggested it will have drawn down almost that amount by 2026 - two decades ahead of schedule.
The document also set out that it expected Nest to have three to six million active members by the end of 2016: in today’s letter, Devereux admitted just 2.7m of its 4.5m members were active.
The scheme has previously come under fire from private sector rivals, who complain it is benefitting unfairly from state aid.
A report published in January by the PAC suggested Nest will require £20m of assets under management before it can become self-sustaining.
MPs have also complained that “neither the Department nor Nest could provide a credible estimate of the time needed to repay the loan or for Nest to become self sufficient”.
Today a DWP spokesman said: “NEST continues to be key to the success of automatic enrolment.
“Without it, many small and micro businesses would have no option to turn to for setting up a pension for their staff as many traditional providers are unable to meet their needs.”
Nest chief executive Helen Dean added: "We're doing the job we were set up for an we're on track to become self-financing well within the original range forecasted by government and the European Commission."