Pressure mounts on NEST restrictions
The government’s response to the Work and Pensions Select Committee’s report on automatic enrolment and workplace pensions reform was reported here last week. It seemed the government was offering a glimmer of hope that the restrictions placed on NEST – the not-for-profit trust established, with government support, to offer a low-cost default scheme for employers faced with new obligations to set up a pension scheme for low and moderate earners – would be lifted in the not-too-distant future.
And the pressure continues to mount. The key restrictions on NEST are a cap on contributions, and a bar on transfers into the scheme. While promising to ‘reflect further’ on the select committee’s demands for restrictions to be eased, the government nevertheless maintained its position that EU state aid rules preventing the lifting of these restrictions, because NEST benefited from government loans to cover its set-up costs.
But a report in the Guardian earlier this week suggests that this argument may no longer stand up to scrutiny. Labour shadow pensions minister Gregg McClymont has argued that state aid rules no longer apply, because NEST is now up and running, and therefore a going concern.
Furthermore, the extent to which the UK government can expect penalisation for a technical breach of state aid rules, when state aid is being used extensively to bail out the European banking system, is surely open to some doubt.
The government’s line, in responding to the select committee, was that ‘it would not be lawful for the government to remove the restrictions simply to increase take up of NEST—there would need to be evidence that such action is required to address market failure’. Assuming this remains accurate, it surely applies far more to the cap on contributions, rather than the restriction on transfers in.
The absence of a market mechanism for individuals to consolidate all of their retirement saving in one place is, in fact, currently a major concern for DWP and pensions minister Steve Webb, as indicated by a recent consultation on ‘small pension pots’. It seems plausible, therefore, to define this issue as one of market failure, rather than simply removing restrictions for the sake of increasing NEST take-up.