Labour says EU state aid rules no longer apply to Nest and is urging the Government-backed scheme’s independent trustees to seek legal advice on removing its restrictions before 2017.
In March, the work and pensions select committee published a report calling for Nest’s contribution cap and the ban on transfers in and out of the pension scheme to be removed “as a matter of urgency” so it can compete more widely.
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 the committee’s report, the Government said it would be illegal to remove the constraints to increase the take-up of Nest.
It 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 that Nest’s focus remained on its target market.
“In particular, the committee is right to raise the issue of state aid. It would not be lawful for the Government to remove the restrictions simply to increase take up of Nest – there would need to be evidence that such action is required to address market failure.”
Labour Shadow pensions minister Gregg McClymont (pictured) 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.
The conditions 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).
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.”
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.”