Removal of Nest restrictions urgent

The government’s Work and Pensions Committee has recommended the national employment savings trust’s (Nest) cap on annual contributions be removed, as well as the ban on transfers in and out of the scheme.

In its report, Lifting the restrictions on Nest, the Work and Pensions Committee urged the government to introduce the necessary amending legislation as a matter of urgency.

The conclusions and recommendations contained within the report are:

  • The case for lifting the restrictions on Nest has become even more powerful since the implementation of auto-enrolment began, and since the committee recommended the removal of the restrictions in its 2012 report on auto-enrolment.
  • The committee reiterated 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 auto-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. 

Dame Anne Begg, MP, chair of the 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 that 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.

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“The government must act quickly to provide the clarity that employers need in order to make the right choice for their employees.

“As the minister himself recognised, we can’t wait to see if it goes wrong because by then it will be too late.”