HC1494 Work & Pensions CommitteeSupplementary written evidence submitted by the Association of British Insurers

1. Lifting of the Restrictions on NEST

1.1 The ABI has not carried out any impact assessment on pension providers on the lifting of the restrictions on the operations of NEST. However, in our own analysis and work as the NEST model has developed, we have used the following evidence, Making Automatic Enrolment Work—a review for the Department for Work and Pensions, which can be found on DWP’s website. This is the most thorough piece of analysis that exists on the implementation of automatic enrolment into workplace pensions.

1.2 NEST’s role is to offer a pension scheme to any employer who requests it. As a result of this, it benefits from state aid to fulfil this obligation. It was set up to complement, rather than replace, existing pension provision. We believe that the NEST contribution limit should remain in place to ensure NEST serves its target market of low-to-moderate income earners.

1.3 Some commentators argue that the contribution cap and the ban on transfers on NEST should be lifted now so as not to impose any strictures on employers who might be using NEST but whose pension contributions exceed the NEST cap for some employees. It is true that the contribution limit prevents employers from using NEST for highly paid staff, or for medium paid staff where they want to make more generous contributions than 8%. But this shows that the contribution cap is appropriate as it means NEST focusses on its target market.

1.4 We believe this is right because NEST benefits from state aid. The annual contribution limit and transfer ban were key conditions for the industry to support state aid being granted to NEST. NEST is a new entrant to the pensions market with a Government subsidy. It would not be possible for the private sector to secure finance on the same terms. Removing the contribution limit would therefore put NEST into direct, unfair competition with the private sector. With that, it would also impact on the case for state aid to finance NEST.

16 January 2012