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Lifting restrictions on Nest could break EU law, says Boulding

Legal & General pensions strategy director Adrian Boulding says removing restrictions on Nest, as suggested by the work and pensions select committee, could break European Union law.

Nest was set up with a loan from the Government and will start operating in October, with an annual cap on contributions and a ban on transfers in and out of Nest. The restrictions are currently due to be reviewed in 2017.

In a report into auto-enrolment, published last week, the committee called for Nest’s contribution cap and the ban on transfers in and out to be removed, if European state aid rules applying to the Government loan allow, “as a matter of urgency”.

Boulding says: “We think it would be a clear breach of European rules on state aid to lift the restrictions before 2017. The EU would have every reason to look again at the case and intervene. There are potentially strong sanctions on the UK Government if it breaches state aid rules.”

However, giving evidence to the work and pensions select committee in January, pensions minister Steve Webb said that although the restraints “reinforce” the argument for state aid, they are “not integral” to it.

He said: “The state aid story stands because of the public service duty to take everybody, including loss-making businesses, and the duty to have modest costs.”

Speaking to Money Marketing, committee member Oliver Heald says: “If Mr Boulding would like to challenge it in court, that is up to him. But from what the minister told us, we feel confident state aid rules would not be a problem.”

Wealthflow partner Duncan Glassey says: “The restrictions make Nest look like a second-class scheme, so they should go.”

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