In a report published on Thursday the Work and Pensions Select Committee called upon government to scrap two key restrictions that are in place for the National Employment Savings Trust (NEST), stressing it was 'a matter of urgency'.

The report, Automatic enrolment in workplace pensions and the National Employment Savings Trust (NEST) , reads that the committee urgently advices the government to get rid of the current cap on annual contributions that an individual can make to a NEST scheme, saying that "this cap will result in severe complexity for businesses, as it would mean that employers with higher-paid employees could not use NEST as their single pension scheme."

Another ban the committee would like to see lifted is the ban on individuals transferring existing pension pots into NEST. The committee says this will be "disruptive both for individuals who would like to consolidate separate pension pots into their NEST scheme, as well as for employers who would like to operate a single occupational pension scheme".

The low-cost pension scheme established by the government in order to provide millions of employees with a pension at the start of auto-enrolment later this year has, according to the committee "a public service obligation to be available to all employers who wish to use the scheme to meet their auto-enrolment requirements".

Starting in October 2012, millions of employees are expected to start saving into workplace pension schemes for the first time under the new auto-enrolment plans.

The chair of the Work and Pensions Committee, Dame Anne Begg MP, said: "By lifting these two key restrictions placed on NEST, the government would remove barriers that might currently prevent employers from choosing NEST as their pension scheme, as well as making it easier for employees to bring together the other small pension pots they are likely to have."

She said these measures would help reduce the multiple administrative charges and help people to understand how much pension they have built up in total.

Neil Carberry, director for employment policy at the employers organisation CBI responded saying that with the introduction of NEST just a few months away the CBI would advice against making any changes now. He said: "We would caution against making further changes to what is a carefully balanced regulatory framework. The review of NEST scheduled for 2017 is the right time to address issues such as which controls have been placed on saving into NEST.

"It's disappointing that the Committee has not focussed on the real reason why NEST may be struggling to compete with low-cost private sector competitors, which is its high and complex charging regime."

Fees and hidden charges

Fees were discussed but the focus here was not NEST but the general pension provision market. The committee warned about fees and other charges of pension providers saying the government should "use its powers to intervene" if some auto-enrolment schemes have hidden charges, or charges that represent poor value for money. It was very important, the committee said, that people can compare the actual costs of their pension vehicle.

Dame Anne says: "In the insurance industry, comparison websites enable people to compare providers. Our report recommends that the pensions industry should aim to establish a similar model,".

Smaller businesses

With the consultation starting last summer, the committee also looked into the much criticised decision of government that auto-enrolment should apply to all employers, not just the bigger companies. The committee says it agrees that exempting small employers would create "significant complexity", as well as "excluding many employees from the benefits of workplace pension saving".

"We appreciate that auto-enrolment will create new costs and administrative requirements for employers at a time of economic uncertainty," says Dame Anne. "However, this would not only create significant complexities in implementation, but would also mean that pension saving would not reach employees in smaller businesses who have always been the hardest group to reach in terms of workplace pension provision and who are one of the key targets for auto-enrolment."

The National Association of Pension Funds (NAPF), which received praise from the committee for its hard work to improve transparency and create a clear universally-adopted model to compare charges, responded positively to the report. Darren Philp, NAPF director of policy, said: "The economic landscape has changed significantly since the reforms were legislated and we can see the case for the restrictions on NEST to be removed at the current time.

"We all want NEST to be a success – it is a key part of the UK savings picture going forward. And other players have now entered, so the risk of levelling down has weakened. However, the Government still needs to meet its wider commitment to reinvigorate workplace pensions. It must stop prevaricating and press ahead with plans to introduce a flat rate, single tier state pension. And it needs to abandon any planned changes to pensions tax relief in the Budget."

First published 15.03.2012

azeevalkink@wilmington.co.uk