Adviser  >  News  >  June 2012  >  Government rejects changes to NEST transfer rules... for now

Government rejects changes to NEST transfer rules... for now

We take a look at some of the highlights of the Government's response to the Work and Pensions Committee's report on automatic enrolment and NEST.

A brief history

The original inquiry was launched by the Work and Pensions Committee (WPC) to assess the Government's proposals for introducing automatic enrolment in workplace pension schemes and the operation of NEST.

The committee then published its report in March 2012. We wrote about this at the time, you can read a summary of the highlights here.

The Government has now published its response to the committee's report. Here are some selected highlights with a summary of the recommendations, the government's response and how things may change:

Early access to pension savings

Committee recommendation:
Further consideration should be given to allowing people to access to their pension savings early in certain circumstances, such as extreme financial hardship.

Government response:
A consultation on this was launched back in December 2010, you can read a summary of our response here. The Government will consider it further if, after automatic enrolment has been up and running for a while, allowing early access would be a significant factor in reducing opt-outs.

Status: Possible future change.

Interaction with state benefits

Committee recommendation:
There is a need to sort out the complicated means tested state benefits system as this could act as a disincentive to save.

Government response:
State pension reform is already firmly on the agenda and a white paper will be published with a view to introducing a bill "as soon as a legislative slot becomes available".

Status: Future change.

Women and the automatic enrolment threshold

Committee recommendation:
The automatic enrolment threshold should not be linked to the single person's personal tax allowance (8,105 for the 2012/2013 tax year).

Many people, the majority of whom are women, are persistent low earners. If the automatic enrolment threshold kept pace with the personal tax allowance, many of these low earners would lose out on valuable pension benefits.

Government response:
They recognise that low earners will be excluded from automatic enrolment and there will be more women than men in this group. However people with low earnings are less likely to benefit from pension saving so a balance must be struck.

The automatic enrolment threshold will be set each tax year and will take into account many factors, including tax and National Insurance thresholds and increases in prices. Those workers not automatically enrolled will still have the right to opt in or join pension saving.

Status: No change.

Encouraging savings above the 8% of qualifying earnings minimum level

Committee recommendation:
It's unlikely that 8% will give people an adequate level of retirement income so government should conduct a review in 2014. This should consider how to encourage people to save more and if minimum contribution levels should be increased.

Government response:
They will not consider reviewing minimum contributions in 2014. This will only happen after automatic enrolment has been up and running for a while.

Status: Possible future change.

Active member discounts (AMDs)

Committee recommendation:
AMDs can lead to disproportionately high charges for deferred members so providers should operate a fair balance between active and deferred members. Government should consider intervening if providers fail to do so and the issue is not resolved by the consolidation of small pots.

Government response:
They agree that people should not be subject to disproportionately high charges simply because they have moved jobs. They'll monitor the situation and take action if necessary.

Status: Possible future change.

Delay in implementation for small employers

Committee recommendation:
There should be no further delays to the introduction of automatic enrolment for small employers and government should confirm this will be the case.

Government response:
They remain committed to automatic enrolment for small employers but do not confirm there will be no further delays.

Status: No change.

NEST

Committee recommendation:
The transfer ban and contribution cap in NEST should be removed as a matter of urgency as they may stop NEST from being able to operate properly in its target market.

If the small pots issue is to be addressed, the transfer ban in NEST needs to be lifted.

Government response:
Because NEST benefits from state aid, it would be unlawful to remove the restrictions simply to increase NEST's take up rate. Any action to remove the restrictions would have to be taken in light of evidence that NEST is being prevented from delivering to its target market.

There is ongoing work designed to deal with the small pots issue. The government will issue further details in the summer.

Status: Future change.

Published 25 June 2012
2TW1118

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