In response to a DWP call for evidence the TUC, Age UK, Which?, EEF The Manufacturers’ Organisation, the Federation of Small Businesses and the British Chambers of Commerce have written to the Pensions Minister Steve Webb MP calling for immediate lifting of the annual contribution limit and restrictions on transfers in and out of NEST.
NEST was established as a low-cost pension scheme for low- to middle-income earners, with a public service obligation, as the commercial pensions industry was not providing for this market, or not an affordable cost. All the organisations agree that NEST has achieved its aim of serving its target audience and that it is therefore time to lift the restrictions placed on NEST.
The restrictions placed on NEST present administrative problems for employers, in particular those with workers on variable earnings above the annual contribution limit. As the restrictions on NEST mean that employees with earnings over £60,000 cannot use the scheme employers in this position are unable to have a single pension scheme or have to have a ‘top-up’ pension scheme if they choose to use NEST.
The restrictions also have an impact on the employees that NEST was set up to serve. Members of NEST are currently unable to make transfers in or out of scheme, or make top-up contributions, or one-off payments in the event of divorce, inheritance or other such windfalls.
The delay to staging and phasing until 2018, alongside the restrictions placed on NEST, have also affected its ability to gain critical mass as a pension provider. These delays alongside the public service obligation, which rightly require it to serve all employers, also add to its costs.
These burdens ensure that NEST has not been given a competitive advantage as a pension provider by the limited public support given to it from the government through its ‘soft loan’ agreement.
The Government’s consultation on these issues presents a range of options, including the lifting of the restrictions in 2018, but this would not be a compromise. The profitable big employers are auto-enrolling in the first few waves of auto-enrolment to the advantage of commercial pension providers. If the restrictions on NEST are not lifted until 2018 most employers will already have made their choices, with some opting for single scheme providers as they may not be able to use NEST. This would be bad news for their employees, who could then suffer detriment through higher charges. In this scenario inertia could also prevent employers from changing their pension provider to a preferable supplier for their employees once the restrictions on NEST were lifted.
Therefore, as part of this coalition of organisations, the TUC has called for the immediate lifting of the restriction placed on NEST. This would mean that from 2014 when medium and small employers begin auto-enrolling – should they opt for NEST – they will not be at a disadvantage.
The consultation follows the Work and Pensions Select Committee Report in spring 2012 which called for the lifting of the restrictions on NEST. We also welcome the recent announcement by the Office of Fair Trading that it will be conducting a market study into whether defined contribution pensions are established to deliver the best value for savers. This announcement highlights the need to put pressure on pension costs, that there is not enough competition between pension providers, and that NEST is not at an unfair advantage as a pension provider.