Synopsis: NEST contribution limit to be scrapped in 2017.
Date posted: Tuesday, September 09, 2014
Steve Webb announced that the current annual contribution cap of £4,600pa that applies to members of the National Employment Savings Trust (NEST) will be scrapped following a year of negotiation between ministers and the European Commission.
The move will benefit the staff of more than 8,900 employers who administer their pension scheme through NEST.
As well as this, pension savers within NEST are also set to gain new transfer rights, giving them the same opportunities to consolidate their pension savings as members of other schemes.
There are currently more than 1.5 million workers who save into workplace pensions through NEST – with that figure expected to rise to up to 4 million over the next 3 years. The majority of them are lower and moderate earners.
NEST was set up by the government to support automatic enrolment by providing a quality low-cost pension scheme, primarily for smaller employers, in a market which at the time was deemed unprofitable by many private sector providers. These restrictions were originally imposed to ensure NEST focused on its target market. They were cited by the European Commission as reinforcing how government sought to minimise any competitive advantage that could be gained by NEST through its state aid.
But reflecting changes in the market since then and the disadvantage caused to NEST savers by these 2 constraints, last year the government announced its intention to lift them from 2017. The European Commission has recently confirmed that it will not oppose the move.
Minister for Pensions Steve Webb said ‘This is a common sense decision which will help people to save and give certainty and confidence to employers choosing to use NEST. By convincing Europe to support us on this, we’ve achieved a victory for consumers.
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’.
The government will commence a short technical consultation on draft legislation, this autumn, to remove the annual contribution limit and the transfer restrictions on 1 April 2017. The government also retains the option to remove the individual transfer restrictions earlier, from 1 October 2015, to coincide with the introduction of automatic transfers.
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