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EU has Government over a barrel on Nest

Advisers say the Government is hamstrung by European state aid rules after it rejected calls from MPs to scrap restrictions on Nest ahead of the 2017 review.

In March, the work and pensions select committee published a report calling for Nest’s £4,200 annual contribution cap and the ban on transfers in and out to be removed so it can compete with other providers.

Following publication of the report, Legal & General pensions strategy director Adrian Boulding told Money Marketing that lifting the restrictions early would be a “clear breach” of European rules on state aid, which apply as Nest was set up with a loan from the Government.

In its response to the committee’s report, published last week, the Government said: “The evidence that the Nest restrictions are acting as a barrier is not unequivocal and the Government is conscious that the restrictions were designed to ensure Nest’s focus remained on its target market.

“The committee is right to raise the issue of state aid. It would not be lawful for Government to remove the restrictions just to increase take-up of Nest. There would need to be evidence the action is required to address market failure.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “I think the pensions minister would have wanted the restrictions removed but the Government is hamstrung by European state aid rules.

“It would take a long time and a lot of money to go to Europe and try to get the restrictions lifted early and I would be surprised if anyone within the DWP wants to take up that fight at the moment.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “This is a disappointment and, ultimately, the state aid rules were the issue. I do not think the Government had any appetite to take this issue up with Europe.”

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