The DWP call for evidence on the removal of the Nest contribution cap has put pressure on providers to go public if they want to oppose the possible change, says Hargreaves Lansdown head of pension policy Tom McPhail.
The DWP today issued a call for evidence on whether ‘the annual contribution limit and transfer restrictions on Nest are influencing employers’ choice of automatic enrolment scheme in a way that was not intended’.
The ABI and pension providers’ public statements in response to the DWP’s call for evidence on the Nest contribution cap have so far stopped short of calling for it to remain. But at a recent Work and Pensions Select Committee session provider representatives were critical of the lifting of the cap on contributions and transfers, arguing Nest was only permitted to get state aid in the form of a large loan on the basis of it.
That committee concluded that the annual contribution limit and the transfer restrictions on Nest may prevent the not-for-profit scheme from servicing market failure. The Committee recommended that the Government should remove them.
The call for evidence runs from 6 November 2012 until 28 January 2013. The Department will publish a summary of responses in spring 2013.
McPhail says: “If you look at the statements from representatives of Legal & General, Friends Life and Now: Pensions at the DWP select committee, they were vociferous in arguing that all the restrictions should be maintained. We now have Labour pensions shadow Gregg McClymont acting as consumer champion, saying the restrictions should go sooner rather than later. But the providers don’t want to be seen as being anti-consumer. This DWP call for evidence means they have got to put up or shut up.
“The state aid issue stems from the need to secure European Commission approval for the British government to fund the establishment of a scheme which will compete in the market place – in this case for pensions business.
“If the contribution cap and the transfer ban were lifted but the other restrictions were kept in place it should be possible to satisfy the state aid issue whilst also improving the market for employers and employees.”
Steve Webb, minister for pensions says: “We need to make sure that this continues as automatic enrolment moves on to smaller firms and that the constraints on Nest are not a barrier to good consumer outcomes”
Will Aitken, senior consultant at Towers Watson, says: “There is something odd about telling an employee who is already saving £4,400 a year into Nest that, if they want to save a bit more, they will have to set up a different pension arrangement off their own back, and about preventing people from consolidating their savings.
“The question is how much this – rather than merely the obligation to accept even the smallest employers – featured in the European Commission’s thinking when it signed off the loan Nest is getting from the taxpayer on preferential terms. The Government has chosen its words carefully on this point. If anything, it might be hinting that it does not think this will be a problem.
“For some large employers, the restriction on Nest that causes the most problems is actually the ban on transfers out of Nest; this prevents them from using Nest as a nursery scheme and then transferring members’ pots across when they become eligible to join a company scheme with higher contributions after a year or so.”
An ABI spokesperson says: “Unless the government concludes that there is evidence of consumer detriment they will not seek to make a case to the EC to lift the restrictions. The key therefore is whether there is any consumer detriment and how this could be defined for purposes of the consultation.
“We will respond to the consultation and we remain supportive of NEST and the basis on which it was established.”