Pension scheme rules to change
Pensions Minister Steve Webb said that the Government will legislate "as soon as Parliamentary time allows" to lift restrictions placed on Nest (National Employment Savings Trust), set up as a not-for-profit option to fill gaps in the market as the automatic enrolment of workers into pension schemes rolls out.
There have been widespread calls for the rules around Nest to be relaxed amid concerns that many employers would be unable to use the scheme as a single pension for their whole workforce and would have to plump for alternatives which do not have the same obligations to keep costs down.
The Work and Pensions Committee recently said that caps on annual contributions into Nest and a ban on transfers in and out of the scheme must be scrapped ''as a matter of urgency''.
In a written ministerial statement, Mr Webb said he plans to legislate as soon as possible to lift caps on the contribution limits into Nest from 2017, in time for an increase to the minimum contributions which must be made into pension schemes. Around 10 million workers will eventually be placed in workplace pensions as part of the Government's landmark plans to tackle the retirement savings crisis.
The process began with larger firms and all employers will be brought into the reforms by February 2018. Minimum contribution levels are 2% of earnings, but as auto-enrolment progresses they will rise to 5% from October 2017 and 8% the following year. The Government will also ease rules so that people can transfer existing pensions into Nest, to help them to build up one big pot.
Mr Webb said that the changes will give employers certainty that Nest will continue to be an appropriate scheme when minimum contributions rise.
He said: "With over 250,000 members already, it is clear that Nest is a success. Targeting low to moderate earners that the market has traditionally forgotten, Nest has innovated with its use of language and investment strategy and has ensured that everyone has access to quality pension provision."
David Robbins, a senior consultant at Towers Watson, said: "Where employers only do the bare minimum, there is plenty of scope for individuals to top up their savings without smashing through the £4,500 ceiling. But it's still bizarre to tell a Nest member who wants to save £5,000 this year to help make up for years of not saving that they will have to set up a personal pension to take the final £500 of contributions."
Richard Lloyd, executive director of consumer group Which? welcomed the announcement but said the Government should look at lifting the restrictions earlier if there was evidence of consumer detriment. He said: "We also need to see minimum standards for workplace pensions as soon as possible to give people confidence that they are being automatically enrolled into high quality and good value schemes."