Restrictions on the amount workers can save under the National Employment Savings Trust (NEST) auto-enrolment pension scheme should be removed if it is to successfully encourage saving, a Work and Pensions Committee report has advised.
NEST is currently restricted by an annual £4,400 contribution cap, meaning employers wanting just one scheme for auto-enrolment are unable to use NEST because employee’s earning over around £60,000 would breach this amount.
According to the report, the annual contributions cap is adding complexity for, and disadvantaging, employers and employees, while the ban on transfers is preventing the consolidation of small pension pots. It warned that the restrictions risk costing the taxpayer money.
The Committee is urging the Government to remove NEST restrictions immediately, rather than waiting for the 2017 review, to provide greater certainty for employers when a large majority begin auto-enrolling in 2014.
MPs said the case for lifting restrictions had become more pressing since its last committee report published last year.
Chair of the Work and Pensions Select Committee, Dame Anne Begg, said: “For auto-enrolment to continue to work successfully, NEST must be allowed to thrive.”
“Employers want simplicity. They want to be able to choose one pension scheme to cover all their employees. The cap on annual contributions to NEST means that employers can’t opt for NEST for their higher-earners or if they want to make more generous contributions. So some employers are dismissing the NEST option and choosing a private pension provider who can offer a scheme for all their employees.”
Dr Ros Altman, director-general at Saga, said: “The aim of the restrictions was supposedly to ensure NEST focussed on its remit to ensure lower paid workers would always be served, even if they are unprofitable to existing providers. But the emphasis on this remit has resulted in NEST being locked out of other profitable business that it obviously needs if it is to be viable.”