Special pleading from insurance industry on NEST restrictions
Today the government’s consultation on the restrictions on NEST closes.
The TUC has joined with other consumer groups and a coalition of employers to support the lifting of the contributions limit – no-one can save more than £4,200 a year – and the ban on transfers in or out of NEST. But insurance companies – with one honourable exception – still oppose. Helen sets out the background clearly here.
The Pensions Commission called for a new state sponsored pensions scheme as there was clear market failure – the existing pensions industry had failed to serve the needs of low to medium savers and smaller employers. There needs to be at at least one scheme that had a public service obligation under auto-enrolment to serve every employer.
The restrictions were imposed ostensibly to ensure that NEST served this target audience but had more to do with keeping the insurance industry on-side with the reforms. They saw a new low cost scheme set up with state aid (in the form of a soft loan) as a potential threat, even if they do not have the ability to pick and choose customer employers.
NEST is now well established (disclosure: I am a trustee member). No-one argues that it has failed to concentrate on the needs of less well-off savers – indeed it has been criticised by some for not following conventional investment approaches developed for the better off. Even if the restrictions go, it still has to accept every employer at the same charge – while other companies can pick and choose who they pitch to.
Employers support the lifting of restrictions because they want to be able to choose a scheme that can serve all their employees. The contribution cap means that better paid staff cannot use NEST.
This is a strong argument, but what should clinch this debate is the interests of savers. NEST members are the only pension scheme members that are limited by law from putting as much as they can afford into their pension. They cannot consolidate previous pension pots in NEST, nor if they move to an employer with a good scheme take their NEST savings with them.
They have been made into second-class pensions citizens.
It is not good enough for pension companies to say that change is not needed because “the market is already delivering a range of solutions for employers” . This does not justify the restrictions on NEST members.
And this is why Aviva deserve praise for breaking with the industry’s conventional wisdom by calling for the restrictions to go.