The DWP announcement that it has already decided to scrap the restrictions on Nest, well in advance of the scheduled review in 2017, looks on the surface like a strong pro-consumer decision. However if Steve Webb isn’t careful, he may still end up getting cast as the pro-business, anti-consumer villain of the story.
The restrictions which are being lifted relate to the maximum level of contribution which can be paid into Nest and to the transfer of benefits in and out of Nest from or to other pension arrangements.
The back story is that the Government was only allowed to subsidise the setting up of Nest in the first place with a low interest loan, on the basis that Nest has a public service obligation and it was filling a gap in the market which commercial providers might choose not to serve. Without these restrictions, it would have been breaching EU regulations relating to state aid.
To his credit, Gregg McClymont, Steve Webb’s Labour shadow, has consistently challenged this point, arguing that the state aid rules didn’t necessitate imposing the contributions and transfers restrictions on Nest. He has been calling for their removal for the past couple of years now.
Alongside yesterday’s announcement that the restrictions will be lifted by 2017 (and possibly as early as October 2015) comes confirmation from the EU that in fact the contribution and transfer restrictions were never necessary to satisfy the state aid rules.
So two questions: why were the restrictions on contributions and transfers introduced in the first place, and what happens next? The answer is probably that back in 2010/11 Steve Webb felt he had to do a deal with the pensions industry to keep everyone on board. If he hadn’t bowed to their pressure and hamstrung Nest with some awkward restrictions, he could have had a judicial review on his hands from insurance companies angry at the state subsidising the set-up of a low cost competitor (and believe me, they really didn’t like the risk of Nest potentially stealing their customers).
Fair enough perhaps at the time, but not now. Since 2010 Steve has shown himself to be increasingly confident in his decision making and does not readily bow to industry lobbying; what’s more, with an election looming, what better than to discharge this outstanding pro-consumer issue ahead of 2017 by announcing now that the Nest restrictions are to be removed?
It’s also worth noting that some insurance companies may well be struggling to handle the auto-enrolment business they’ve already taken on so if more work is coming Nest’s way, it’s probably a good idea to free them from unnecessary encumbrances.
This is all well and good, except that Gregg McClymont is not unreasonably immediately outflanking the pensions minister by challenging the Government as to why it doesn’t remove the restrictions on Nest immediately, now that the EU has confirmed the state aid issue is a non-issue, rather than waiting to 2017.
So aside from the fun and games of political manoeuvring, where does this leave us? For Nest customers, both employers and their employees, the good news is that the restrictions are going, though for the time-being, perhaps not soon enough. The Nest restrictions were always unpleasant and the sooner they go, the better.
From a policy point of view, it also clears the decks for ‘pot follows member’ and for Nest to allow access to the Budget freedoms. It just remains to be seen who ends up being the bad guy in the story.
Tom McPhail is head of pensions research at Hargreaves Lansdown