Relative success of auto-enrolment brings amendments forward
Artificial restrictions on the government-backed NEST pension scheme will be lifted in 2017 to allow it to compete directly with its pensions industry peers making it a potentially more attractive auto-enrolment option for more employers.
Pensions minister Steve Webb said NEST’s maximum annual contribution of £4,600 limit would be removed “to ensure all businesses can be confident that this low cost and easy to use scheme is among the options they can choose to enroll their workforce”. In addition, the department for Work and Pensions confirmed that it will remove restrictions on bulk transfers in and out of NEST in 2017, although the government has also retained the option to lift the restriction on individual transfers from 1 October 2015.
The NEST scheme was set up to support automatic enrolment and provide a quality, low-cost pension scheme focused on a target market of low to moderate earners and smaller employers. However, following the relative success of auto-enrolment take up, the government has decided that the restrictions placed on NEST to ensure other providers were not subjected to unfair competition from the state-supported scheme are no longer required.
Webb said: “NEST currently has over 1.5 million scheme members and is working with over 8,900 employers. The scheme has a public service obligation to accept any worker automatically enrolled by their employer and in recognition of this, NEST receives state aid. To balance any competitive advantage there are a number of constraints including an annual contribution limit and restrictions on transfers.”
In his statement Webb explained: “In its response to the call for evidence on the impact of the annual contribution limit and the transfer restrictions on NEST, published in July 2013, the government confirmed its intention to lift these two constraints in April 2017.”
Tom McPhail, head of pensions research at consultancy Hargreaves Lansdown, said: “The original plan for NEST was that these restrictions would be reviewed in 2017, so in making this announcement now, the government could be accused of jumping the gun, however there are good reasons behind this decision.
“Auto-enrolment is working better than expected. Opt-out rates have been lower than many had forecast and so far the pensions industry has proved itself capable of working with NEST to meet market demand. The argument in favour of artificially restricting NEST’s ability to compete directly with its pensions industry peers is no longer relevant.”
McPhail also said that the pensions minister is in a hurry to get his ‘Pot Follows Member’ (officially known as Automatic Transfers) project bedded in before the election and the NEST restrictions on transfers are “an inconvenient complication in this context”.
“Elements of the pensions industry have lobbied hard to bind and restrict NEST as much as possible; particularly those pension providers which are competing directly with NEST for the high volume, low cost end of the market. They will not be happy about today’s news, however given the pensions minister’s track record of listening to and then frequently ignoring the lobbying of industry vested interests, it probably won’t come as much of a surprise to them,” he added.