The government is to consider lifting the National Employment Savings Trust (NEST) current contributions cap (£4,400 from all sources in 2012-2013) and allowing the scheme to accept transfers in.
NEST contribution constraints
NEST was established as part of the Government’s auto-enrolment scheme for workplace pensions. From October 2012, and throughout 2013 depending on their size, employers will be obliged to enrol their workforce into an approved pension scheme. NEST is one of several low-cost schemes that employers can use if their current scheme is unsuitable or if they have no current provider.
Employers are required to make a minimum contribution of 3%, which will be augmented by an employee contribution of 4% and a further 1% from HMRC in the form of tax relief. The total minimum contribution is therefore 8%, but employers, and employees, can pay in more and boost their pension savings.
When NEST was set up, the total contribution level per employee was limited to prevent it competing with existing pension scheme providers. For 2012-2013 the limit is £4,400.
Transfers into NEST are also restricted. At the moment it is unable to accept transfers in from other pension schemes, except in unusual circumstances, such as divorce settlements. This means that employees who join NEST are forced to leave previous pension savings ‘stranded’, rather than adding them to the fund they are currently accumulating.
Announcing a consultation on NEST, the Minister for Pensions, Steve Webb, said: ‘We are already seeing the positive effect that NEST is having on the world of pensions. Workers are being signed up for workplace pension schemes at much lower charges than in the past and firms have much more choice of provider than in the past.
‘But we need to make sure that this continues as automatic enrolment moves on to smaller firms and that the constraints on NEST are not a barrier to good consumer outcomes.’
Which? calls for changes
Responding to the Government’s consultation, which opened yesterday and closes on 28 January 2013, Which? executive director, Richard Lloyd, said: ‘The restrictions placed on NEST will cause extra hassle for consumers and employers. The Government should stop capping people’s aspirations for a comfortable retirement by removing the contribution limit and the ban on transfers.’
The call for restrictions on NEST to be lifted was echoed by the National Association of Pension Funds (NAPF), Age UK, Saga and the TUC.