Labour says EU state aid rules do not apply to Nest and is urging the scheme’s independent trustees to seek legal advice on removing its restrictions early.
Under current plans, annual contributions into Nest will be capped at £4,200 and transfers in and out of the vehicle will be banned. The restrictions are due to be reviewed in 2017.
In its response to a report from the work and pensions select committee calling on the Government to scrap the restrictions “as a matter of urgency”, the Government claimed such a move risked breaching European state aid rules.
But Labour Shadow pensions minister Gregg McClymont says Nest meets the four conditions set out in the Altmark judgment of July 24, 2003 and therefore payments from the Government to the scheme do not constitute state aid.
McClymont says: “EU state aid rules no longer apply to Nest. The Government can and should remove the Nest restrictions.
“There are strong grounds for the independent trustees of Nest obtaining their own legal advice. The restrictions on Nest reduce the economies of scale it can achieve. This raises the cost of the administration of pensions to all existing members.”
Legal & General pensions strategy director Adrian Boulding says: “If Labour did not think Nest needed state aid approval, then it should not have gone to the European Union and asked for it. A significant part of the successful application was the restrictions placed on Nest to keep it focused on its target market, which is where the public service obligation is critical. To remove the restrictions before 2017, the Government would have to go back to the EU with a fresh state aid application.”
A Department for Work and Pensions spokeswoman says: “The first condition in Altmark says Nest’s public service obligation must be clearly defined.
“The constraints on Nest are intended to resolve the failure in the private pensions market resulting in existing commercial providers finding it difficult to provide a suitable, low-cost pension to low to moderate-earners or people working for small employers. Nest is focused on this market and the restrictions are part of the definition of this public service obligation.”
Altmark judgment conditions
The conditions set out in the Altmark judgment are:
1. The recipient of Government funding must have clearly defined public service obligations to discharge.
2. The parameters on the basis of which the compensation is calculated must be established both in advance and in an objective and transparent manner.
3. The compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit.
4. Where the undertaking is not chosen in a public procurement procedure, as was the case with Nest, the level of compensation must be determined by a comparison with an analysis of the costs that a typical transport undertaking would incur (taking into account the receipts and a reasonable profit from discharging the obligations).