NAPF calls on UK government to drop NEST transfer restrictions
UK – Transfer restrictions and the limit on annual contributions to the National Employment Savings Trust (NEST) should be removed if the system is to achieve its purpose of promoting pension savings, the UK National Association for Pension Funds (NAPF) has warned.
The comments were made in the NAPF's submission to the Department of Work & Pensions' (DWP) consultation on constraints within the NEST rules, which closed last Monday.
At present, transfers of individual pension pots into or out of NEST are banned, as are bulk transfers made by employers.
There is also an annual limit on individual contributions.
The restrictions were originally planned to be reviewed in 2017 at the earliest.
But after the Work and Pensions Select Committee recommended their removal, the DWP launched a consultation last November.
In its submission, the NAPF said the ban on transfers meant that when an employer chooses to change its automatic enrolment scheme from another scheme to NEST – or from NEST to another scheme – past contributions cannot be moved.
It said this was likely to discourage employers from using NEST, since their employees' savings could be effectively trapped.
It would also prevent other providers from competing for savings already paid into NEST.
In contrast, removing the transfer restriction might increase competition, possibly lowering charges.
Darren Philp, director of policy at the NAPF, said: "The reforms to automatically enrol workers into a pension are a huge opportunity to get our country saving for its old age. And for auto-enrolment to work, we need NEST to be a success."
But he said the ban on transfers placed NEST at a disadvantage, hampering its ability to help employers provide a good pension offering for their employees without additional burdens on cost.
"We want NEST to rank alongside offerings such as multi-employer schemes, and in order to do that, it should be treated like any other occupational scheme," he said.
"It is important to include NEST in the automatic transfer system of small pots that the government is developing, and employers should be allowed to transfer in and out of NEST."
The NAPF is also calling for the annual contribution limit into NEST – £4,400 (€5,130) for 2012-13 – to be axed.
It estimates that the current ceiling is equivalent to total contributions of 8% on total income of £55,000 per annum.
"NEST should constitute a good choice for higher earners, as well as for those on lower incomes," said Philp.
He said the contribution limit could also force employers to set up schemes with two providers – NEST for the bulk of the workforce, and another provider for higher-paid staff.
"Small and medium-sized employers in particular would not want to be dealing with more than one scheme," he said.
"However, the government needs to carefully consider the timing of this change, so as not to jeopardise the fledging auto-enrolment market."