How lifting Nest restrictions could affect the market

Nest was created to help employers and individuals with auto-enrolment, and has a strong public service obligation, but some argue lifting restrictions could threaten other providers in the market.

Lifting restrictions, after a year of tough negotiation with European authorities, means that Nest can continue to fully meet its public service obligation

Department for Work and Pensions

On Monday, pensions minister Steve Webb announced in a written ministerial briefing that the government would remove the annual contribution limit and bulk transfer restrictions on April 1 2017, and retain the option to remove individual transfer restrictions from October next year.

The announcement followed the European Commission's June report approving the removal of these modifications. 

Michael Spink, defined contribution consultant at Spence & Partners, said the removal of restrictions would make Nest more appealing to employers.

Nest is a “good product up front,” he said, but added the contribution cap of £4,600 often takes it out of contention with other options.

“It will help the micro-employers coming forward who can’t afford the advice,” said Spink. “The existing private providers won’t be too happy.”

However, another mastertrust called for an independent body to regulate Nest. “Nest are having to pay back [a] government loan and are a non-departmental government body,” said Darren Philp, head of policy at mastertrust The People’s Pension. "The government needs to be clear on how they’re managing that conflict."

Philp argued for the creation of a new oversight body, subject to what happens with the current speculation around a single regulator, dubbing it "Ofpen" – or "Office of Pension Responsibility".

Nest charges a 0.3 per cent annual management charge, plus a 1.8 per cent contribution charge, and its competitors will be watching to see the impact of the regulatory easements on this structure.

“If the 1.8 per cent didn’t apply, the 0.3 per cent is very low and would be an unfair advantage – but if it did apply it would be a disadvantage,” Philp said. “Either it’s unfair on the market or the member.” Fellow mastertrust Now Pensions declined to comment. 

The restrictions on Nest

The annual contributions made by members to their Nest pension pot cannot exceed the contribution cap, set this year at £4,600 but adjusted annually.

The scheme also has restrictions prohibiting transfers to or from Nest and other pension providers – except in some circumstances, such as the member being over 55 years of age.

A Department for Work and Pensions spokesperson said Nest was created as a provider because the pension market had failed to offer suitable products to small businesses and low earners.

The spokesperson added: “Lifting restrictions, after a year of tough negotiation with European authorities, means that Nest can continue to fully meet its public service obligation.”

However, shadow pensions minister Gregg McClymont said: “This should have been done much earlier, since, as I repeatedly told the government, the state aid rules no longer applied to Nest. Freeing Nest is the right thing to do but it must happen immediately."

Despite this, Nest welcomed the announcement. The mastertrust’s chief executive Tim Jones said: “We’ve always said timing was a matter for government. We welcome the confirmation that restrictions will be lifted in 2017.

"In practice, this ensures that the restrictions will be lifted before contributions phase up, making it easier for employers to work out how best to comply with their duties, and allowing members more freedom to save.”