Member Article

Committee calls for urgent removal of pension restrictions

The Government has been urged to lift NEST restrictions on pension schemes as a matter of urgency.

In a report published on Monday, the Work and Pensions Committee said NEST (National Employment Savings Trust) regulations implemented to offer simple, low-cost pensions schemes must be removed.

A ban on transfers in and out of the scheme and a cap on the total level of annual contributions are the two restrictions the committee raised major objections to.

The committee said since auto-enrolment was introduced in October last year, these regulations could make it difficult for employers, particularly SMEs, to offer a single workplace pension scheme.

Concerns were also raised as the ban on transfers could prevent individuals from consolidating their separate pension pots into the NEST, or any other, scheme.

A review of NEST regulations was scheduled for 2017, but the committee said the contributions cap and transfers ban should be lifted with immediate effect to support the implementation of auto-enrolment.

Dame Anne Begg, MP and chair of the Work and Pensions Select Committee, said: “Since auto-enrolment began, the case for lifting the restrictions has become even more powerful, and the need for action more pressing.

“For auto-enrolment to continue to work successfully, NEST must be allowed to thrive. Employers want simplicity. They want to be able to choose one pension scheme to cover all their employees.

“The cap on annual contributions to NEST means that employers can’t opt for NEST for their higher-earners or if they want to make more generous contributions.

“So some employers are dismissing the NEST option and choosing a private pension provider who can offer a scheme for all their employees.

“NEST is required to be a low-cost scheme and to offer good value. Other pension providers don’t have this same obligation.

“There is therefore a risk that the restrictions will mean some employees are prevented from having access to the best value pension scheme available.

“The Government has already made clear that it will need to “fix” the issue of transfers in and out of NEST if it wishes to implement its “pot follows member” solution to the current problem of small pension pots. This makes the case even stronger for lifting the restrictions now.

“Auto-enrolment begins for medium and small employers from 2014. They will begin preparations a year to 18 months before then. Now is the time for action to be taken, it cannot wait until 2017.

“The Government must act quickly to provide the clarity that employers need in order to make the right choice for their employees.

“As the Minister himself recognised, we can’t wait to see if it goes wrong because by then it will be too late.”

The committee’s recommendations have been put to the Government consultation on pension regulations, which ended in January.

This was posted in Bdaily's Members' News section by Miranda Dobson .