Restrictions on the Government’s auto-enrolment solution, the National Employment Savings Trust (NEST), should be lifted if it is to prove effective in encouraging retirement saving, a new report has said.
All employers will be required to establish a qualifying pension scheme for their staff and make contributions to each individual pension by 2017, in the hope that up to ten million will be enrolled by this time.
Larger companies will be the first to automatically enrol workers when the programme rolls out this October.
The report into auto-enrolment and the NEST – designed as a low-cost pension scheme to deliver the programme – raised concerns that restrictions would hinder some from saving.
Government restrictions on the NEST scheme include an annual contributions cap of £53,000 and a ban on transferring existing pension funds into the scheme.
The parliamentary Work and Pensions Select Committee report said that the cap could cause ‘severe complexity’ for smaller businesses while the non-transferable pension funds would cause hindrance for those wanting to simplify and consolidate separate schemes. It is requesting the removal of restrictions as a matter of urgency.
Commenting on the report, NEST itself had said that the restrictions were having ‘detrimental effects’ on savers and employers by restricting choice and increasing complexity and costs.
Both the Trade Union Congress and MP Gregg McClymont, Labour’s shadow work and pension’s minister, said in response that the NEST had focused on lower earners and that the report had warranted a compelling case on lifting restrictions to benefit both consumers and employers.
However, business groups including the Association of British Insurers (ABI) and the Confederation of British Industry (CBI) warned that any changes being made so close to the introduction of auto-enrolment should be aired with caution.
Steve Gay, director of life, savings and protection at the ABI, said: “Changing the purpose of NEST before it has even begun the job would be a mistake. NEST was designed – with the full support of the pensions industry – to help those on low incomes. With auto-enrolment beginning this year, it should focus on doing that, rather than competing for higher paid customers who already have plenty of choice.
“The cap will only impact those earning over £53,000 so we need to stick to the original plan of making auto-enrolment a success, then review it in 2017 to see if changes are needed.”
