Lifting Nest restrictions will be too little, too late
That's why it's good news that the restrictions put on the National Employment Savings Trust (Nest) are finally being lifted. As from 2017 members of Nest will be able to save more than the £4,500 a year limit currently in place and they will also be allowed to transfer money in and out of the scheme, meaning they could feasibly consolidate all their workplace and private pensions into Nest.
The benefits of this are obvious, not only does it allow those want to save more than the percentage of wages set out under auto-enrolment but the government could feasibly achieve its plan for everyone to have a 'big fat pot' instead of lots of little pension sums floating around with lots of different employers.
It also avoids the rather ridiculous issue of people tipping over the cap when the percentage of savings increase automatically over the next few years; by October 2018 a combined employee and employer contribution will stand at 8% of salary.
This may seem like the government sticking two fingers up to the insurance industry whose moaning about the unfairness of the government competing in their space meant Nest had its hands tied in the first place, but in fact the insurers have still managed to work it in their favour.
The restrictions won't be lifted until 2017 by which point all the large employers, who are profitable for pension providers, will have already chosen which scheme to use. In 2017 when Nest's restrictions are lifted it will only be left with the smaller, less profitable businesses.
Why is this bad? It's bad for taxpayers and members of Nest. The set-up of Nest was subsidised by a taxpayer grant, which is being paid back over time by an extra levy on Nest members. The fewer the assets Nest looks after the longer it will take to pay back the public and the longer Nest members will have to suffer the extra charge.
The insurance industry may think it's unfair that they have to try and compete with the government but it's not fair to back Nest into a corner and make it commercially unviable either.
If the pension industry had done a better job in the first place, providing people with worthwhile pensions at a fair price and with decent returns maybe the government wouldn't have had to step in in the first place.