Consultation seeks to lift restrictions on auto-enrolment scheme

A consultation into restrictions placed on one of the schemes available to employers for automatic pension enrolment has been launched by the Government.

It is seeking views on whether annual contribution limits and transfer restrictions on the new auto-enrolment solution, the National Employment Savings Trust (NEST), may be hindering employee retirement saving.

The low cost scheme has been specifically designed to target low to moderate earners, small firms and those with a high turnover of staff, who have historically struggled to access the pensions market.

According to the Department for Work and Pensions (DWP), NEST has a 'public service obligation to ensure that everyone eligible for automatic enrolment can access a low cost pension scheme.'

Automatic enrolment - designed to encourage more people to save towards their retirement - began on 1 October for the largest firms, with all firms gradually following suit by February 2018.

Minister for pensions Steve Webb said that it wanted to make sure that constraints did not hinder consumer uptake as enrolment moves on to smaller firms.

The DWP Select Committee recently concluded that the restrictions could prevent NEST from servicing its target market.

Welcoming the consultation, director general for Saga Dr. Ros Altmann said that the restrictions mean that NEST will struggle to succeed.

"Most employers will want only one pension scheme, but this can't be NEST," she said.

"Employers with existing pension schemes cannot use NEST for all their staff pensions and many will not want to have to bother with more than one scheme. NEST means current pension accruals can't be put into NEST and any high paid staff cannot be auto-enrolled into NEST if their minimum contributions exceed the maximum limit."

Age UK also welcomed the Government's decision to consult.

Michelle Mitchell, director of Age UK, said: "We've long argued that lifting restrictions on NEST would help more people build up one lump sum for retirement that can be converted into an annuity in later years.

"Without these changes, people who switch jobs frequently will find themselves with lots of little pension pots which are difficult to convert."