9th September 2014
The Government has revealed it will lift restrictions on the amount people can pay into the pension fund it has set up for employees who do not have a workplace scheme.
The National Employment Savings Trust (Nest) was established as part of reforms to automatically enrol all workers into a pension scheme by 2017.
As the default scheme for employees of companies that do not run their own pension plans, Nest was designed with lower earners and small employers in mind, but the reforms announced to day will make the scheme more appealing to companies who also want to cater to their higher salaried staff.
From April 2017, members will not be limited to a maximum annual contribution of £4,600, enabling Nest users to save more towards their retirement each year.
The Department of Work and Pensions says it will also remove restrictions on bulk transfers from this date, so that companies wishing to move a number of staff from an existing pension into Nest would be able to do so.
It will look at removing the ban on individual transfers in and out of Nest from October 2015, so that employees who wish to consolidate several pensions from previous jobs in one place would be able to do so.
The changes will be subject to a short consultation now, rather than in 2017, as was originally planned.
The restrictions were initially conceived to placate the pensions industry over fears that the Government-backed scheme would have an unfair advantage and to comply with state aid rules.
However, these fears have substantially reduced as Nest appears to be working well alongside existing providers and there are now concerns that restrictions on the scheme are leaving some middle-earning savers nowhere to turn between the state-backed scheme and private sector alternatives.
Auto-enrolment is working better than expected, with opt-out rates lower than many had forecast.
The easing of transfer restrictions will reduce some of the difficulties facing pension minister Steve Webb in his plan to enable pension pots to follow savers whenever they switch jobs.
The reforms would also mean that Nest savers could benefit from the new freedoms that the Government is introducing to enable retirees to withdraw their pension funds by whatever means they choose.
Tom McPhail, of Hargreaves Lansdown, the adviser, says: “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.”
The Labour shadow pensions team has called for the restrictions on Nest to be lifted straight away and does not see the point in delaying reforms until 2017.