The government has been told it should remove the cap on annual contributions to the National Employment Savings Trust (Nest) and remove the ban on transfers in and out ‘as a matter of urgency’.
The Work and Pensions Select Committee of MPs believes that the annual contributions cap is making life difficult for employers and employees, and the ban on transfers prevents the consolidation of smaller pension pots.
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Nest and pension auto-enrolment
Nest is part of the government’s auto-enrolment plans. Between October 2012 and the end of 2017 employees without a workplace pension will automatically be enrolled into a scheme. Employers without an existing pension scheme have the option to set one up for their staff or enrol them into Nest – a pension scheme set up by the government.
At present, the maximum contributions that someone can pay into Nest are capped at £4,000 a year and staff cannot transfer pension savings in or out of the scheme.
The committee believes that the two restrictions should be lifted now rather than waiting until a review in 2017. They suggest small- and medium-sized employers need ‘certainty’ before auto-enrolment begins for them in 2014. The Committee made the same recommendations in March last year but said the case had become ‘even more powerful’ since auto-enrolment had begun.
Auto-enrolment changes could help employers and consumers
Dame Anne Begg MP, chair of the Work and Pensions Select Committee, said: ‘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.’
The government has said that Nest restrictions will not be lifted until there is evidence that restrictions on annual contributions and transfers are detrimental to consumers.
Which? executive director, Richard Lloyd, said: ‘The restrictions placed on the National Employment Savings Trust 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.’