The government has announced that they will look to remove a cap on contributions and a bar on transfers in an effort to avert retirement saving crisis. This apparent U-turn means that they will consider removing restrictions that had threatened to ruin the solution to the occupational pension crisis.
Official statistics showed fewer people now pay into workplace pensions than at any time since the 1950s. In a reaction to the data, the government established the not-for-profit National Employment Savings Trust (Nest). The organisations aim was to challenge the high charges traditionally associated with the private pensions industry, and provide modestly paid workers with a low-cost home for their retirement savings. Despite the positive intent Nest was limited by two major restrictions. The first was that annual combined contributions from the employee and the employer were capped at £4,400. Secondly workers were barred from transferring pensions from previous jobs into the scheme, sentencing many to remain in costly private schemes.
Until last week the government always claimed that European state aid policy prevented it from releasing Nest from the rules. However last week the pension’s minister, Steve Webb published a paper which agreed to a rethink on the restrictions.
Chief executive of Nest Tim Jones welcomed the review as they have lost a significant proportion of savers to the regulation. He said, “A number of employers have chosen not to look in detail at Nest at all because of the restrictions and they’ve told us that.”
Shadow pensions minister, Gregg McClymont said, “I welcome the fact that the government has finally responded to pressure from the DWP [Department for Work and Pensions] select committee and Labour for a re-examination of the most important restrictions on Nest. But they need to be lifted as soon as possible so that savers and employers alike get the greatest benefit.”
He added that the legal advice that he was releasing, “raised serious questions about the previous claim from the government that there was a European bar on liberating Nest. In true Yes Minister style, vague allusions to legal advice have been used to justify inaction and shield vested interests – and at the expense of the hard-pressed saver.”
A DWP spokesperson said, “We have always said we will review the NEST restrictions in 2017. But many companies will be making important decisions about pensions under automatic enrolment in the coming five years, and following the work and pensions select committee’s comments earlier this year, it is important that we test whether the restrictions on Nest will remain relevant particularly for SMEs [small and medium-sized enterprises] and do not create unintended outcomes for individuals.”
Executive director of the consumer advocacy group Which? Richard Lloyd said, “The restrictions placed on Nest will cause extra hassle for consumers and employers. The government should stop capping people’s aspirations for a comfortable retirement by removing the contribution limit and the ban on transfers.”Share