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Nest spared Osborne’s axe

The National Employment Savings Trust has been spared Chancellor George Osborne’s axe as the structure of the Government’s auto-enrolment reforms began to take shape last week.

Osbourne announced in the comprehensive spending review that the Government-sponsored savings scheme will be rolled out at low levels in 2011, with volunteer employers and their low to moderate earners set to contribute to the fund.

Towers Watson senior consultant Paul Macro says confirmation that Nest will go ahead suggests that all employers, including small businesses, will be included in the reforms.

He says: “There has never been a clear commitment from the private sector to provide pension schemes for the smallest employers, who cannot be profitably served under current business models.

“If the Government had pulled the plug on Nest, it may have led to exemption of small employers from the new laws, which would have left significant part of the workforce without a pension.”

Macro says the next question facing officials is how quickly loans to Nest will be repaid. Under current plans, members will be charged 2 per cent on contributions.

Standard Life head of pensions policy John Lawson says the need to ensure Nest achieves sufficient scale to be low-cost and high quality could force the DWP to set the entry-level threshold below £10,000.

He says: “If they set the enrolled level at too high a level, say, £10,000 or £12,000, then that really cuts the market for Nest. If you cut the market for Nest, then the charges are going to have to go up or else the taxpayer is going to have to subsidise it.”

A Nest spokeswoman confirmed that the contract with Tata Consultancy Services, which will provide critical administration services to the scheme, remains under review.

She says the Government and the trustees will announce in November whether or not the contract, worth around £600m, depending on volumes, will go ahead.

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