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NEST pension savings cap to be lifted in 2017 following EU approval, UK government confirms

Out-Law News | 10 Sep 2014 | 12:08 pm | 2 min. read

The limit on the amount that workers and their employers can contribute to the state-backed, low-cost National Employment Savings Trust (NEST) will be removed from 2017, the UK government has confirmed.

It could also allow early transfers in and out of pension pots held by NEST, after the European Commission confirmed that it would not oppose any moves by it to do so. The current ban on bulk transfers and limit of £4,600 on annual contributions have been imposed on the scheme since the start in order to ensure that NEST focused on its target market and minimise any advantages the government's support of NEST through a subsidised loan gave the scheme over its commercial competitors.

"This is a common sense decision which will help people to save and give certainty and confidence to employers choosing to use NEST," said Steve Webb, the pensions minister.

"It's about time action was taken to give the 1.5 million people now saving with NEST the same rights as members of other schemes and the confidence that they're getting excellent value for money. These changes will help to build a fairer society by allowing those on low to moderate incomes to save more towards their retirement," he said.

The government said that it would hold a "short, technical consultation" this autumn on draft legislation that would remove the annual contribution limit and bulk transfer restrictions on 1 April 2017. It may decide to remove individual transfer restrictions from 1 October 2015, to coincide with the planned introduction of 'pot follows member' small pension pot automatic transfers when a worker changes job.

In its decision document, the European Commission said that it would not oppose the changes as they "do not affect the aid measure itself but concern only the technical design of NEST".

NEST was designed to be a low-cost, trust-based occupational pension scheme for people who were largely new to pension saving as a result of automatic enrolment. It has a public service obligation to ensure that everyone eligible for automatic enrolment can access a low-cost pension and has a particular focus on savers not well served by the existing market such as low to moderate earners, those with smaller employers and firms with a high turnover of staff.

The largest employers began automatically enrolling their workers into NEST, or into their own occupational schemes which meet the minimum standards, in October 2012. Smaller employers are set to follow in a staggered implementation programme, running until April 2017. Once the process begins, employers are required to automatically enrol 'eligible jobholders' aged between 22 and the state pension age who are earning more than £10,000 a year.

The government as yet has no intention of removing some of the other constraints placed on NEST to ensure that it continues to meet the needs of lower earners and smaller employers. These include a requirement that the scheme accepts everyone automatically enrolled into it, even if their income does not cover the cost of their account, and a prohibition on offering other products such as life insurance as a means of boosting margins.

NEST chief executive Tim Jones said that the government's announcement was "welcome and timely".

"Removing the cap on contributions by April 2017 means that the cap will be gone before minimum contributions increase from their current level, 2%, to 5%," he said. "That not only simplifies things for employers, but also helps NEST members in building up their pots in the longer term."