The government has launched a consultation on whether to lift restrictions on the National Employment Savings Trust (Nest).
The Department for Work and Pensions (DWP) has put out a call for evidence on whether to lift a ban on transfers in or out of Nest and a contribution cap, imposed when the scheme was set-up in 2010. It also questions whether the restrcitions will hamper automatic small pot transfers.
The paper asks for evidence on whether keeping the restrictions in place will lead to parts of the market not being served.
It asks for evidence on:
- Whether the complexity of the constraints is inhibiting employer choice, even where the workforce is in Nest’s target market
- The extent to which commercial providers, other than Nest, are able to supply low-cost provision to a very diverse range of employers
- Whether the balance between employer choice and consumer interests will change as automatic enrolment moves smaller employers
The paper also questions whether Nest should be included in new rules allowing automatic transfers of small pension pots
Under plans, small pension pots would be transferred automatically between providers whenever a person moves jobs. If the transfer restriction remains in place Nest would be left out of the reform.
In September New Model Adviser® reported some providers would be willing to see the ban lifted in order to make the small pot transfer reforms work properly.
In its paper the DWP said it has assumed Nest would be part of small pot transfers and that keeping the ban would harm savers.
‘The current restrictions on transfers would exclude Nest from a new system of automated transfers. Given Nest’s scale, this would mean that the number of small pots that could be consolidated, and the financial benefits that would accrue from consolidation, would be significantly reduced. It would also mean that Nest members would not be able to benefit from automatic transfers as part of any broader industry wide solution.’
Pension minister Steve Webb (pictured) has faced calls to lift the restrictions from the Labour party which argued the restrictions have already served their purpose by making Nest focus on the low paid and keeping its charges low.
Webb has argued the restrictions were put in place so that Nest did not fall foul of European Union state aid rules. Nest has been funded by a multi-billion pound government loan which could be viewed by the EU as an unfair government subsidy unless Nest was restricted to a target market of savers with low incomes and small businesses.
The paper asks whether other pension providers were able to serve Nest’s target market and keep charges low for smaller providers.
The DWP has proposed a range of alternatives to completely removing both restrictions early, including:
- Wait until the February 2018, when all auto-enrolment staging will be completed, then remove both restrictions
- Amend the transfer restrictions specifically to allow automatic transfer of small pots but not allowing transfer of bigger ones.
- Enable Nest to accept bulk transfers up to a certain value.
- Only stipulate a fixed percentage of members must not breach the contribution limit during the course of the year
- Remove the annual contribution limit at a specific point during staging