NEST transfer ban 'inconsistent' with UK pensions policy
UK - The UK government's refusal to lift restrictions placed on the National Employment Savings Trust (NEST) is at odds with its own pensions policy, a new report by the Centre for Policy Studies has argued.
In a detailed report on the UK savings culture, author Michael Johnson also called for changes to the law that would allow members early access to their pension pots and argued that, rather than increasing investment options within defined contribution (DC) funds as auto-enrolment launched, companies should reduce both costs and operational complexity by only having limited options.
Johnson, who in the past has advised the ruling Conservative party on pensions policy, was critical of its refusal to lift transfer bans on NEST, which, in its current state, he branded "uncompetitive".
"NEST is gearing up in the face of mounting private sector competition," he said. "It suffers from several serious structural disadvantages, notably the cap on contributions and the inability to transfer assets in or out. Both limitations should be removed."
His recommendations will be welcomed by the shadow minister for pensions Gregg McClymont, who has repeatedly criticised the government's refusal to review restrictions ahead of the 2017 deadline.
The cross-party committee for Work and Pensions also called for the restrictions to be lifted.
Johnson also noted that NEST's inability to allow transfers was "entirely inconsistent" with pensions minister Steve Webb's plan to consolidate pension pots.
"The prevailing inaction contradicts a lot of what Steve Webb is seeking to achieve," he said.
"[The government] should also demand much greater disclosure of pension funds' all-in operating and transaction costs per member. This would help expose the inefficiencies of small pension schemes and therefore help beneficiaries hold trustees to account."
The author also called for the government to "lead by example", renewing his call for Local Government Pension Schemes to merge, leaving as few as five, rather than more than 100.
He suggested that, in the interest of attracting workers to pensions, members should be allowed to draw down cash ahead of retirement, calling it the "lesser of two evils".
"The stark truth is that the pension product is from another time, before college debt, fragmented careers and increasingly unaffordable housing," he said.
Several DC-based systems in the world already allow early access in specific circumstances, such as the 401(k) system in the US and the KiwiSaver in New Zealand, which allows members access to savings to purchase property.
He said only controlled early access should be permitted, with only 25% of the pension pot being used to buy a property.
The report also argued that investment choice was not necessarily the way forward in a DC world, pointing to Now Pensions' use of only one investment option.
Now Pensions, launched by Denmark's ATP, has said its experience showed that the overwhelming majority of members would be satisfied with one option, with multiple investment options offered in one of its Danish schemes only taken advantage of by a minority of members.
"Reducing choice is also in the industry's interests because choice increases marketing costs and adds to operational complexity," Johnson said.