The government has confirmed its intention to remove the annual contribution limit and transfer restrictions on the National Employment Savings Trust (Nest).
The restrictions on annual contributions, which currently stand at a maximum of £4,600, and removal of the restrictions on bulk transfers will be lifted from 1 April 2017.
The government has also retained the option to lift the restriction on individual transfers from 1 October 2015.
The restrictions were originally put in place to limit the competitive advantage of a not-for-profit provider that benefits from a state subsidy.
More than 1.5 million workplace savers have been automatically enrolled into Nest since the scheme was launched in 2012.
The confirmation follows an annoucement in July 2013 that Nest restrictions would be lifted in 2017.
The government will launch a short technical consultation on draft legislation this autumn, to remove the restrictions.
Steve Webb (pictured), pensions minister, said: “Nest was set up to support automatic-enrolment. It was designed to provide a quality, low-cost pension scheme focused on a target market of low-to-moderate earners and smaller employers.
“I am pleased to announce the government intends to remove the annual contribution limit and transfer restrictions on Nest, to ensure all businesses can be confident that this low-cost and easy-to-use scheme is among the options they can choose to enrol their workforce.”
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Damian Stancombe, head of workplace health and wealth at Barnett Waddingham, added: “Nest has been allowed to exist as a non-competitive entity because clearly it would distort the provider market otherwise.
“The removal of the contribution limit and transfer restrictions is a step towards making Nest more competitive and should therefore only be allowed if the repayment of Nest’s debt to the government is properly classified.”
We fully welcome proposals to remove the annual contribution limit and transfer restrictions on Nest. The introduction of a workplace pension price cap will mean that many smaller employers will have very few pension options available to them as providers become even more selective regarding the pension schemes they are prepared to run.
For many of these employers Nest could prove to be the best remaining option and that will certainly be the case for many of the micro employers that will reach their auto enrolment staging date from June 2015.
The current restrictions in place would mean that many employees would be disadvantaged by having far less flexibility simply because they work for a small company.
Removing the contribution and transfer restrictions would at least give these employees more of a level playing field and hopefully help them to build bigger pension pots.
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.
Firstly, 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.
Steve Webb is in a tearing hurry to get his ‘Pot Follows Member’ (officially known as Automatic Transfers) project bedded in before the election. 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 the 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.
Hargreaves Lansdown has consistently argued in favour of removing the restrictions on Nest at the first possible opportunity.
Finally, there are the budget freedoms coming in next year. Whilst the majority of Nest investors would already have been covered by the existing trivial commutation rules, it would potentially be quite awkward for the government if Nest scheme members found themselves unable to take advantage of the same freedoms as other pension scheme members.
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