Aegon has warned lifting Nest’s restrictions early will risk causing consumer detriment because the Government-backed scheme was not designed to meet the needs of higher earners.
Nest is currently shackled by a transfer ban and an annual cap on contributions of £4,400. These restrictions, which were put in place to ensure the scheme focuses on its target market of low to medium earners, are due to be reviewed in 2017.
In November, the Department for Work and Pensions issued a call for evidence asking whether the restrictions are influencing employers’ choice of automatic enrolment scheme in a way that was not intended.
Earlier today, the TUC, Age UK, manufacturers’ trade body EEF, the Federation of Small Businesses, the British Chambers of Commerce and Which? called on the Government to scrap the restrictions because they make auto-enrolment “difficult for both employers and employees”.
The issue has divided insurance companies, with some, such as Aviva, calling for the restrictions to be lifted.
However, Aegon regulatory strategy manager Kate Smith says: “We think removing the cap could lead to poorer consumer outcomes because the entire Nest proposition, including the default investment fund, has been designed for low to medium earners.
“It is simply not suitable for higher earners because of the very cautious outlook in the early days.
“Nest’s proposition also does not help employers deal with the complexity of automatic enrolment and that is a major oversight. Without that help employers will simply get it wrong.”
Nest chief investment officer Mark Fawcett says: “We believe a well diversified fund that manages risk actively throughout different economic conditions is an investment approach that most people require.
“Nest’s default investment strategy manages risk in this way through three distinct phases based on members’ ages. All of these phases have clear objectives with the aim of maximising pot sizes whilst avoiding unrewarded or unacceptable risk.”