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A coalition of consumer groups, employer organisations and the TUC has today (Monday) written to the pensions minister calling on the government to lift the current legal restrictions on NEST, which impose a maximum annual contribution and forbids transfers in and out of the pension scheme.

date: 25 January 2013

embargo: 00.01hrs Monday 28 January 2013

A coalition of consumer groups, employer organisations and the TUC has today (Monday) written to the pensions minister calling on the government to lift the current legal restrictions on NEST, which impose a maximum annual contribution and forbids transfers in and out of the pension scheme.

The letter on NEST - the new low cost workplace pension scheme designed for low to medium earners - is signed by the TUC, Age UK, EEF The Manufacturers' Organisation, the Federation of Small Businesses, the British Chambers of Commerce and Which?. It calls on the government to end the restrictions as they make auto-enrolment difficult for both employers and employees.

The letter says that many employers are unable to use NEST as a single scheme for their whole workforce as a result of the restrictions, and having to potentially juggle more than one scheme is an unnecessary administrative headache which will also add to costs.

The restrictions also prevent employees from building up the pension they desire, particularly in the years running up to retirement when many wish to maximise their savings.

The letter calls on the government to end these restrictions as soon as possible, and rejects the suggestion that they should only go after employers have chosen their auto-enrolment scheme, as some organisations suggest.

The signatories believe that ending restrictions in 2018 - a proposal currently being considered by ministers - will be too late for employers as by then they will have already decided their workplace pension providers.

The government's consultation on the lifting of NEST restrictions closes today.

TUC General Secretary Frances O'Grady said: 'We were always opposed to the restrictions on NEST because they are against the best interests of its members and the UK workforce in general. Now even those who said they were needed to ensure that NEST focussed on low to medium earners must concede that they have done that job.

'The restrictions are a burden on employers and workers, and must be lifted as soon as possible.'

National Policy Chairman of the Federation of Small Businesses Mike Cherry said: 'NEST was intended as a low-cost default scheme targeted at small businesses and their employees, who have not been well served by the pensions industry.

'The restrictions on contributions and transfers placed on NEST will place unacceptable burdens on small firms, who could find themselves having to juggle more than one scheme to accommodate their workforce, and will hit savers.

'It is crucial that small businesses have the confidence that, should they choose NEST, their employees are not placed at an unfair disadvantage.'

EEF Director of Policy Steve Radley said: 'At a time when confidence in pension saving is low, the government must take every opportunity to make it as easy and transparent as possible. NEST has the potential to deliver this and could become the main way to invest in pensions for many employers and workers.

'But we will only get there if the government lifts the current restrictions on contributions which stand in the way of it becoming the low cost, low administration savings vehicle it needs to be.'

NOTES TO EDITORS:

Full text of letter

Dear Mr Webb,

We write as a group of consumer and employer organisations to express our common support for lifting the restrictions on NEST. This will be good for consumers, employers and the public policy objective of helping people retire with a decent income.

We welcome the current consultation and stress our support for the immediate lifting of the restrictions in the form of the annual contribution limit and transfers in and out of NEST.

NEST was established as a low cost not-for-profit scheme to serve the low- to middle-income market which was not being well served by commercial suppliers. To the extent that the restrictions forced NEST to concentrate on this target audience, they have done their job. Lifting the restrictions now will not undermine this. On the contrary, it will improve the prospects of NEST's objective being met.

It is important to consider the impact of these restrictions within the context of more recent changes made by the Government. The signatories to this letter have different views about the extension of staging and phasing, but there can be no doubt that the delay to the roll-out of auto-enrolment has affected NEST.

Furthermore, the public service obligation which rightly requires NEST to serve all employers, including those that the pensions industry would not find attractive, at affordable charges, also adds to its costs.

These burdens ensure that NEST has not been given any special competitive advantage by the limited public support given through its 'soft' loan agreement. The additional restrictions in place further erode its ability to compete with other providers in the open marketplace, which is in contrast to the role NEST sees for itself.

Many employers - particularly small and medium-sized ones - will want a single pension supplier for their staff which they know can be relied on to be run in the interests of savers. The restrictions on NEST prevent them fulfilling this role and add to the administrative burden on employers in implementing auto-enrolment. Employers may find themselves having to juggle two pension schemes because NEST is shut off from higher-earning employees owing to the restrictions in place.

Any administrative problems for employers caused by the restrictions on NEST are likely to also have an impact on their employees. Unlike employees in organisations that have chosen other pension suppliers they will not be able to make transfers from or out to other pots, or make additional regular, or windfall, contributions to their NEST pension that take them above the limit. Workers in the later stages of their lives may be particularly adversely affected. Taken together, the restrictions are very likely to prevent NEST from achieving critical mass and as a result could lead to higher charges in the medium term, to the detriment of businesses and their employees.

We would stress that lifting the restrictions in 2018 is not a compromise position and will be too late for many employers, a large number of which have a staging date in 2014. The big employers most attractive to the pensions industry in the early waves of auto-enrolment have already decided on their supplier. It is only right that small and medium-sized employers are safe in the knowledge that, should they choose NEST, they and their employees will not be at a disadvantage. There is therefore an urgent need to lift the restrictions on NEST if employers are to have a more realistic choice of using NEST.

Yours sincerely,

Frances O'Grady, General Secretary, TUC

Michelle Mitchell, Charity Director-General, Age UK

Terry Scuoler, Chief Executive, EEF

Mike Cherry, National Policy Chairman, FSB

Dr Adam Marshall, Director of Policy and External Affairs, BCC

Peter Vicary-Smith, Chief Executive, Which?

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Contacts:

Media enquiries:
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Alex Rossiter T: 020 7467 1337 M: 07887 572130 E: arossiter@tuc.org.uk

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