Case for lifting restrictions on low cost pension scheme 'unanswerable'

By agency reporter
July 2, 2013

New research from the Department for Work and Pensions (DWP) published yesterday (1 July) makes a compelling case for lifting the restrictions on NEST (the National Employment Savings Trust), the low-cost national pensions scheme set up by government, says the Trades Union Congress (TUC)

Legislation prevents NEST accepting most transfers in and out of the pension scheme and imposes an upper contributions limit how much anyone can put into NEST in any year.

The restrictions were introduced ostensibly to ensure that NEST catered for a target market of low to median earners, but also at the urging of sections of the insurance industry concerned at the prospects of a low cost new entrant into the market.

The main effect of the restrictions is to make any employer with staff paid above the salary ranges of the target audience have an additional pension scheme on top of NEST for better paid staff.

The government acknowledges that people earning £60,000 will be hit by the restriction on contributions into NEST. However, the TUC believes that the strong desire for a single provider among small employers means that low to median earners are also less likely to be enrolled into NEST because firms will look elsewhere.

The new DWP research shows:

* 89 per cent of employers with 10-49 employees and 85 per cent with 50-249 want a single scheme for their entire workforce.
* But 30 per cent of employers with 10-49 employees and 63 per cent with 50-249 have employees earning more than £60,000. Nearly one in ten of these employers have more than 10 per cent of their workforce earning more than £60,000.

TUC General Secretary Frances O'Grady said: "NEST now has a great track record in providing innovative pensions for low to middle earners. Lifting the restrictions will not alter this.

"NEST is the only pension scheme that cannot say no. It has a public duty to accept every employer, even those that pension companies would not want as customers or only do so at charges well above NEST levels.

"Smaller employers without in-house pensions expertise are those most likely to want a single pension schemes and also employ very many workers on low to moderate wages. The restrictions are likely to prevent NEST reaching many in the target market parliament intended. The case for lifting them is now unanswerable."


Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.