The DWP has confirmed the cap on contributions and transfers into Nest will be removed from April 2017.
The government says it will also retain the option to remove the individual transfer restriction from October 2015.
In a written ministerial statement to Parliament published today, pensions minister Steve said a short technical consultation on the widely anticipated issue would be launched this autumn.
The statement said: “I am pleased to announce the Government intends to remove the annual contribution limit and transfer restrictions on Nest, to ensure all businesses can be confident that this low cost and easy to use scheme is among the options they can choose to enrol their workforce.
“Nest was set up to support automatic enrolment. It was designed to provide a quality, low-cost pension scheme focused on a target market of low to moderate earners and smaller employers. Nest currently has over 1.5 million scheme members and is working with over 8,900 employers. The scheme has a public service obligation to accept any worker automatically enrolled by their employer and in recognition of this, Nest receives State aid. To balance any competitive advantage there are a number of constraints including an annual contribution limit and restrictions on transfers.
“In its response to the call for evidence on the impact of the annual contribution limit and the transfer restrictions on Nest published in July 2013, the Government confirmed its intention to lift these two constraints in April 2017. Since then, the European Commission has considered and approved the modifications to the State aid case for Nest.
“Accordingly, we will commence a short technical consultation on draft legislation, this autumn, to remove the annual contribution limit and the bulk transfer restrictions on 1 April 2017. We also retain the option to remove the individual transfer restrictions, from 1 October 2015.”
Nest chief executive Tim Jones says:” This is welcome and timely confirmation that the restrictions on contributions and transfers will be removed by 2017, particularly with automatic enrolment now starting to affect medium and smaller employers. Removing the cap on contributions by April 2017 means that the cap will be gone before minimum contributions increase from their current level of 2 per cent, to 5 per cent.
“That not only simplifies things for employers, but also helps Nest members in building up their pots in the longer term. Nest remains critical to delivering the automatic enrolment policy, fulfilling its role as the provider with a public service obligation to be open to any employer to use. We now have over 1.5m members and are working with around 9,000 employers.”