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Nest restrictions to go
09 July 2013
UK government-backed scheme to allow unlimited contributions and transfer from 2017
The National Employment Savings Trust (Nest), the UK's publicly-backed pension scheme set up for automatic enrolment, is to have restrictions limiting its activities removed in 2017, the government has announced.
Nest currently faces a limit on annual contributions of around £4,500 a year, which it has argued makes the scheme unsuitable for certain employers to use for all staff members, as it would require a 'top-up' scheme in place for higher earners. The scheme is also barred from accepting or allowing transfers in or out. The restrictions were part of the initial design of the scheme to keep it focused on its core market of lower to median earners, although Nest and other pension providers had argued that the restrictions placed some employers and savers at a disadvantage and should be removed.
In a written ministerial statement, pension minster Steve Webb, said the restrictions had been “very successful” in focusing Nest on its core market, but “to make sure we achieve our aim of getting people saving, we have decided that Nest must continue to focus on its target group without any distractions.”
Webb said that in line with existing proposals that resulted from the government's review of automatic enrolment in 2010, the restrictions would be lifted as of 2017. He argued that Nest's contribution cap should not be lifted sooner, as the way contributions are being phased in – a minimum employer contribution of 1% of a band of earnings, rising to 5% by late 2017 – meant “no employer contributing at this level or the full 8% will exceed the annual contribution limit.”
Adrian Boulding, pensions strategy director at Legal & General, who sat on the government's review of automatic enrolment and has been an outspoken critic of Nest, said the result was a “very sensible compromise and a fair use of State Aid” and added that L&G would support the plans to lift Nest restrictions in 2017 if EU sought L&G's opinion on fairness under state aid rules.
Helen Dean, managing director of product and operations, Nest, said: "Members and employers will be able to use Nest as they would any other pension, with no specific restrictions on the amount they can contribute or the ability to transfer in and out.
"We welcome the certainty this announcement brings for employers and members. This means the restrictions will be lifted before minimum contributions rise to 5 per cent in 2017. Nest continues to focus on our target market as we always have done."
However, shadow pensions minister Labour's Gregg McClymont, accused the government of of 'pandering to special interests':
“Last year, the government blamed Brussels for not being able to lift the restrictions on Nest. We published legal advice to say this was not true. This year, they say that they can lift the restrictions after all. But not until 2017 and after the majority of people have already been auto-enrolled. The government has failed savers and pandered to special interests instead. We need urgent action now to create private pensions people can trust.”