Victory for consumers as pension saving limits to be scrapped
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Restrictions limiting the amount that millions of British workers can save towards their pensions are now set to be scrapped.
Restrictions limiting the amount that millions of British workers can save towards their pensions are now set to 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 pensions scheme through NEST – the National Employment Savings Trust – lifting an annual contribution limit of £4,600 which currently applies to them.
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.
Under automatic enrolment, around 1.2 million employers will eventually have to set up pension schemes for their staff and 8 to 9 million people are forecast to be newly saving, or saving more, into a workplace pension.
NEST was established to underpin automatic enrolment by providing a workplace pension for any employer who wished to use it to meet their automatic enrolment duties. It was set up to focus on a target market of smaller employers and low to moderate earners.
The government recognised concerns that these constraints were preventing NEST from serving smaller employers. It is important that employers have certainty about the future when considering NEST as their workplace pension scheme. This will give them confidence that NEST is and will remain a suitable scheme for their workers.
In addition, the transfer restrictions placed a barrier on savers consolidating their pension savings in one place in order to keep a closer eye on their money.
Following the European Commission decision not to oppose the government’s plans to lift the constraints on NEST, 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.
NEST has a public service obligation to accept any worker automatically enrolled by their employer and in recognition of this, NEST receives state aid in the form of a subsidised loan from government. The constraints were intended to ensure that NEST focused on its target market so that it complemented, rather then replaced, existing good quality pension provision. These constraints, whilst not integral to the state aid case, were cited in the original approval as reinforcing how government sought to minimise any distortion in the market.
Employers have to automatically enrol workers who:
- are not already in a qualifying workplace pension scheme
- are at least 22 years old and below State Pension age
- earn more than £10,000 (2014/15) a year
- work or ordinarily work in the UK (under their contract)
Automatic enrolment began on 1 October 2012. Automatic enrolment will apply to all employers by February 2018.
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