The Pensions Minister Steve Webb has announced this morning that from 1 April 2017, the restriction on annual contributions into NEST will be lifted. It currently stands at a maximum annual contribution of £4,600.
The DWP have confirmed that they will be removing restrictions on bulk transfers from that date. They have also retained the option to lift the restriction on individual transfers in and out of NEST from 1 October 2015. The original plan for NEST was that these restrictions would be reviewed in 2017, so in making this announcement now, the government could be accused of jumping the gun, however there are good reasons behind this decision. Firstly, auto-enrolment is working better than expected. Opt-out rates have been lower than many had forecast and so far the pensions industry has proved itself capable of working with NEST to meet market demand. The argument in favour of artificially restricting NEST’s ability to compete directly with its pensions industry peers is no longer relevant.
Steve Webb is in a tearing hurry to get his ‘Pot Follows Member’ (officially known as Automatic Transfers) project bedded in before the election. The NEST restrictions on transfers are an inconvenient complication in this context. Elements of the pensions industry have lobbied hard to bind and restrict NEST as much as possible; particularly those pension providers which are competing directly with NEST for the high volume, low cost end of the market. They will not be happy about today’s news, however given the Pensions Minister’s track record of listening to and then frequently ignoring the lobbying of industry vested interests, it probably won’t come as much of a surprise to them.
Finally, there are the budget freedoms coming in next year. Whilst the majority of NEST investors would already have been covered by the existing Trivial Commutation rules, it would potentially be quite awkward for the government if NEST scheme members found themselves unable to take advantage of the same freedoms as other pension scheme members.
