MPs have called for Nest’s contribution cap and the ban on transfers in and out of the Government backed scheme to be removed “as a matter of urgency” so it can compete more widely.
Under current plans, when the National Employment Savings Trust begins operating in October, annual contributions will be capped at £4,200 and transfers in and out of the vehicle will be banned.
A new report from the work and pensions select committee says the contribution cap will mean high earners cannot use the scheme so firms would have to run two pension schemes, increasing complexity and costs. It also says the ban on transfers in will stop savers consolidating small pots in Nest, which it says is the “obvious” vehicle for aggregating small pots.
The restrictions are due to be reviewed in 2017, but the report says if rules governing the Government loan used to set Nest up allow, the restrictions should be removed as “a matter of urgency”.
Committee chair Anne Begg says: “These restrictions make it impossible for Nest to meet the needs of all the employers and employees who might want to use it. By lifting these two key restrictions placed on Nest, the Government would remove barriers that might currently prevent employers from choosing it as their pension scheme as well as making it easier for employees to bring together their small pots.”
Nest chief executive Tim Jones says: “There is some evidence to suggest the restrictions are having detrimental effects and unintended consequences by restricting employer choice, preventing members in our target market having access to Nest and increasing the complexity of how the product works and so increasing costs to our members.”
Speaking to Money Marketing, committee member and Conservative MP Brandon Lewis says the Government should review the restrictions in 2013, when the scheme has been operational for a year. He says Nest and the market would benefit from having the restrictions removed but that it is important Nest does not dominate the market.
He says: “By 2013, quite a few of the big firms will have been enrolled, and we will be able to see if Nest is getting too big for its boots and if it is not then we can look at removing the restrictions.”