This week the UK pensions industry breathed a big collective sigh of relief. Not because summer has finally arrived, but because the government announced it will lift the contribution cap and transfer restrictions on the National Employment Savings Trust (NEST) from 2017.
The announcement came not a moment too soon. By finally allowing transfers in and out of the scheme and not placing restrictions on the amount members can contribute, employers can use NEST as they would any other pension scheme and employees can consolidate all their pensions in one place – an important step towards addressing the small pots issue.
It’s a wonder to many why the restrictions were ever there in the first place? The government said the restrictions were in place to ensure the scheme remained focused on its ‘target’ market – typically companies with employees on relatively low incomes – instead of companies which historically offered more generous pay and pensions offerings.
But surely targeting all employers and leaving it up to them to decide would have been a better approach from the start? Granted it might turn out that NEST does in fact only reach this socalled ‘target’ market, but I suspect that is highly unlikely and I’m sure it will also be picked up by companies of all shapes and sizes – and it should have been made appealing to them from day one, not from 2017.
Indeed, many people are asking why the restrictions are not lifted immediately – why wait until 2017 at which point most members will be enrolled into NEST? The shadow pensions minister Gregg McClymont said the government had “failed savers” and pandered to special interests by not lifting the restrictions until 2017.
Personally I think “failed savers” is a bit harsh because ultimately the collective aim is to get more people saving for retirement, which lifting these restrictions will help do. It is a shame we still have to wait the best part of four years for it to kick in but at least the government has listened to the industry and acted.
So from 2017 workers will be able save more and transfer existing pensions into NEST, while employers can provide NEST as a single scheme, providing their staff with a worthwhile employee benefit. Everyone’s a winner.
It’s been quite a week in pensions with the NEST announcement coming the same day the UK Coal Scheme entered the Pension Protection Fund and the EMI Group Pension Scheme announced the biggest UK buyout to date at £1.5bn. So much for the summer lull.
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