11 February 2013

UK Work and Pensions Committee: Lift NEST restrictions now

In a report, 'Lifting the restrictions on NEST', the Work and Pensions Committee reiterated its previous recommendation that the Government should remove the cap on annual contributions to National Employment Savings Trust (NEST), and the ban on transfers in and out of NEST.

Dame Anne Begg MP, Chair of the Work and Pensions Select Committee, said: “Since auto-enrolment began, the case for lifting the restrictions has become even more powerful, and the need for action more pressing. For auto-enrolment to continue to work successfully, NEST must be allowed to thrive. Employers want simplicity. They want to be able to choose one pension scheme to cover all their employees. The cap on annual contributions to NEST means that employers can’t opt for NEST for their higher-earners or if they want to make more generous contributions. So some employers are dismissing the NEST option and choosing a private pension provider who can offer a scheme for all their employees.“

“NEST is required to be a low-cost scheme and to offer good value. Other pension providers don’t have this same obligation. There is therefore a risk that the restrictions will mean some employees are prevented from having access to the best value pension scheme available. The Government has already made clear that it will need to “fix” the issue of transfers in and out of NEST if it wishes to implement its “pot follows member” solution to the current problem of small pension pots. This makes the case even stronger for lifting the restrictions now. Auto-enrolment begins for medium and small employers from 2014.  They will begin preparations a year to 18 months before then.  Now is the time for action to be taken, it cannot wait until 2017.“

The case for lifting the restrictions on NEST has become even more powerful since implementation of auto-enrolment began, and since the Committee recommended the removal of the restrictions in its 2012 report on auto-enrolment. The Committee reiterates its previous recommendation that the two restrictions be lifted now, rather than waiting until the 2017 review.  This is necessary to support the continued success of automatic enrolment implementation.

The annual contributions cap is adding complexity for employers and employees. The ban on transfers prevents the consolidation of small pension pots, and will need to be fixed in order for the Government to proceed with its “pot follows member” solution to the small pots problem. The restrictions risk disadvantaging employers and employees, and preventing NEST from using taxpayers’ money most effectively. The Committee sees no justification for continuing to inhibit NEST by persisting with the restrictions.

It is important that the Government makes the decision to remove the constraints on NEST as soon as possible, to give small and medium-sized employers the certainty they need before auto-enrolment begins for them in 2014. Amending legislation should be introduced as a matter of urgency. The Government should make it a priority to gain certainty on the conditions for the European Commission’s approval of state aid for NEST, to ensure that this is no longer perceived to be an obstacle to removing the restrictions. 

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