Let Nest compete with the big insurers, it might do them good

Updated: 
Golden egg in hand It looks like we're about to see a row break out between the government and the UK's insurance companies over just what the National Employment Savings Trust (Nest) should look like.

Although Nest has already launched the government has now decided it wants to lift the restrictions imposed on Nest by the last government. In order to keep the insurance companies sweet about the launch of its low-cost pension, Labour made some concessions on Nest so it wouldn't appear too competitive and upset the pension companies.


There are five main restrictions; a limit on annual contributions of £4,400, no transfers in or out, all members pay the same charges, all employers must be accepted, and an inability to offer any other products to consumers.

Now, the coalition wants to remove the first two of these five restrictions and allow people to save more and transfer other pension funds to Nest – unsurprising seeing as the pensions minister Steve Webb is sounding the horn for eradicating small pension pots and building up 'big fat pots'.

The insurers, however, have got their knickers in a twist. They're argument is that when Labour went to Europe to get permission to use public money to fund an initiative that would compete in the open market, the restrictions were part of the deal.

They're annoyed that the government can raise money from taxpayers at virtually no interest and become even more competitive.

I have to say their argument is looking very protectionist and smacks of 'it's not fair' sulking.

They argue that it's not protectionist and that companies are still picking insurers over Nest, but surely employers are only picking the insurers because Nest has these restrictions.

Yes, Nest will have some advantages over insurers but not as many as they currently have over Nest.

If an insurer wants to price competitively for different companies and win business, it can but Nest can't.

If an insurer decides that taking on a particular employer isn't worth its while, it can turn them down, Nest can't.

And if an insurer has a new corporate product to sell, such as the corporate ISAs that are becoming more popular, it can cross-sell to pension members, Nest can't.

The insurers already have an advantage and they should remember the they are part of the reason why the government has had to step in with its own pension scheme.

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