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Think-tank warns small firms could shun Nest

Small firms could shun Nest because of the scheme’s annual cap on contributions, according to influential independent think-tank the Pensions Policy Institute.

Nest is currently constrained by a £4,400 annual cap on total pension contributions and a ban on transfers into and out of the scheme.

The Government has come under increasing pressure to lift the restrictions ahead of a planned review in 2017. MPs, consumer groups, trade unions and Nest itself have all warned of potential consumer detriment if the constraints are not lifted early.

In November, the Government issued a call for evidence seeking views on whether the restrictions are influencing employers’ choice of automatic enrolment scheme in a way that was not intended.

The PPI has today published a briefing note detailing how the contribution limit and transfer restrictions could affect auto-enrolment.

Overall, the PPI analysis suggests the contribution cap will not directly impact Nest’s “target market” of low to median earners. It points to research conducted by the Department for Work and Pensions in 2012 which found those with a salary lower than £60,000 are unlikely to breach the cap.

However, the think-tank says small firms may be put off using the scheme if the restrictions stay in place. It also warns older people who have not saved into a pension in the past could be affected by the £4,400 contribution limit.

The PPI says: “Where employers have a workforce that consists of both higher and lower earners, the ability of those employers to use Nest as a sole pension provider is likely to be hindered by the existence of the contribution limit.

“This may be a particular problem for small employers where it may not be viable to run a separate pension scheme for a relatively small number of higher earners.”

It adds: “While higher earners are more likely to breach the contribution limit, an employer’s decision to reject Nest as an option will affect all employees working for that employer, including those lower paid employees targeted by auto-enrolment and Nest.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. I am not sure which is more unfortunate, a financial ‘think-tank’ called PPI or the need to consult in order to arrive at an obvious financial conclusion. What a waste of taxpayers money!

  2. And the problem is?

    NEST exists to provide a solution for employers who can’t find a private one.

    So if an employer finds a market solution that meets their needs better than NEST, mission accomplished!

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