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An on-going campaign by the RSA, TUC and CBI to lift key restrictions on the forthcoming National Employment Savings Trust (NEST) has been recognised by the Work and Pensions Select Committee.

The Committee's report into auto enrolment concludes that certain restrictions placed on NEST will create complexity for employers and will disadvantage some employees.

The RSA wholeheartedly endorses the report and believes a failure to act will compromise the success of the Government's flagship pension policy of auto-enrolment.

Commenting on the report, Director of the RSA's Tomorrow's Investor project David Pitt Watson said:

"We are delighted that The Select Committee has reached this conclusion. The restrictions on NEST mean it provides a worse service, and is more costly to run.  As the Select Committee says, the restrictions should be removed as a matter of urgency".

TUC General Secretary Brendan Barber said:

"The Work and Pensions Select Committee Report shows the strong all-party support for lifting the restrictions on NEST. These have never been in the interests of consumers, but were a concession too far to vested interest lobbying by the financial services sector. NEST has already shown that it will work in the interests of low to medium earners, which was the only argument with any merit for the restrictions. The government should lift them as soon as possible."

The restrictions placed on NEST were first flagged as a problem by the RSA in 2009. The restrictions may look like a detail in the new pensions legislation but are in fact likely to make the system overly complex, and prevent NEST from being as effective as it can be in becoming a "default" provider – a role central to the success of the auto enrolment policy.

The Committee's report recommends that, if state aid rules allow, the Government should remove the following restrictions on NEST as a matter of urgency:

  • The cap on the annual contributions an individual can make to a NEST scheme. The Committee believes that this cap will result in severe complexity for businesses, as it would mean that employers with higher-paid employees could not use NEST as their single pension scheme.
  • The ban on individuals transferring existing pension pots into NEST. The Committee believes that this will be disruptive both for individuals who would like to consolidate separate pension pots into their NEST scheme, as well as for employers who would like to operate a single occupational pension scheme.

The report concludes that:

"NEST was set up to address a market failure in the pensions industry which meant that many employers and employees were unable to access low-cost, good quality pension provision."

"However, the restrictions make it impossible for NEST to meet the needs of all the employers and employees who might want to use it. Unless the restrictions are removed, many employers will still not be able to access its low-cost pension scheme, and many of the employees for whom it was intended will not be reached."


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