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Government may scrap Nest contribution cap

The Government could scrap the annual contribution limit for Nest amid concerns it will not be effective in meeting the scheme’s policy intentions.

An email from the ABI to its members, seen by Money Marketing, reveals officials at the DWP are “under pressure” to reconsider the £4,200 annual limit as the scheme prepares to accept contributions from a small group of voluntary employers this summer.

It says: “As a result of recent press coverage, the DWP now feel under pressure to look again at the Nest contribution limit.

“The annual limit is designed to focus Nest on its target market of individuals who the existing industry currently finds it difficult to serve, therefore complimenting rather than replacing existing provision.

“The DWP is concerned that the limit will not be effective as it could be in achieving the policy intention and would like feedback.”

Under current plans the contribution limit will be reviewed annually in line with average earnings.The Government will then look at removing the cap completely in 2017.

A DWP spokeswoman says: “We accept the ‘making automatic enrolment work’ review’s recommendation that we should look to remove the contribution cap in 2017, so it does not send the wrong message about a ceiling for pension saving.

“However, we think it is sensible not to legislate now and to see how the reforms roll out and assess the impact of the contribution limit on Nest and the industry in light of that.”

A Nest spokeswoman says: “We cannot comment on Government policy. The current cap is £4,200, meaning someone on average earnings of around £25,000 could contribute much more than 8 per cent without hitting that limit.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Piss up in a brewery comes to mind!

  2. “see how the reforms roll out” smacks of we’ve no idea, so let’s just see what happens, make a mess of it, just like stakeholder, and everyone will be none the wiser. It’s not my money as i have a cosy final salary scheme so let’s just tinker again.

  3. I would have thought that it was self-evident why people of modest means are not well-served by existing arrangements. THEY DON’T HAVE THE MONEY!!!!. Do government departments really have this level of difficulty in understanding the bleedin’ obvious.

  4. … and do they feel that those of modest means should be forced into a pension plan, however attractive, that they cannot afford? Obviously they do.

  5. David Trenner - Intelligent Pensions 16th June 2011 at 6:51 pm

    John, Before 1988 most people were forced to accept contributions from their employers. Then Norman Fowler abolished compulsory membership and we now have a generation with no pensions.

    Affordability is relevant to moderate and high earners, but if you are earning less than the average wage you still have to pay tax and N.I., so why not (quasi) compulsory pension contributions too? Pay 4% and get 8% invested looks like a good deal!

    But if we tell them NEST is rubbish they will opt out and have nothing.

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