NEST: Evolving for the Future – government response
03 March 2017
The government has published its response to the Call for Evidence on NEST: Evolving for the Future.
Background
The National Employment Savings Trust (NEST), a trust based defined contribution pension scheme, was established in 2010 to support the introduction of automatic enrolment.
Since the original policy framework for NEST was developed, there have been significant changes in the pensions landscape. The pension freedoms introduced by the Government in 2015 have enabled a greater choice and flexibility in how and when people use their defined contribution pension savings. Alongside this, attitudes towards pension saving are changing, in part due to the shift towards mass market defined contribution pension provision. More people are working flexibly in a more gradual transition to retirement.
For the pensions industry this means that new, innovative retirement solutions are needed that will meet consumers’ needs both whilst they are working and saving, and when they wish to access some or all of their savings.
On 7 July 2016, the Government published a Call for Evidence paper “NEST: Evolving for the future”. The Call for Evidence closed on 5 October 2016 and sought evidence and views from a wide range of stakeholders on:
-
whether or not to allow NEST to provide additional decumulation services for its members; and
-
whether or not there is a case for expanding the opportunities for individuals, employers and other schemes to access NEST’s services.
Government response
Government considers that it is essential that NEST members should have access to appropriate, low cost retirement products that support the aims of automatic enrolment. However, they recognise that the retirement market is very young and hope that development of new products will progress at pace now that the freedom and choice reforms are well established. NEST members currently have very small pot sizes although that will change rapidly once minimum contribution rates increase.
Given the reassurance received from the industry on their intention to innovate, government does not propose that NEST should begin to offer additional decumulation services at this time. However, they will continue to monitor the market, including reviewing the conclusions of the FCA’s Retirement Outcomes Review later this year. If it is not clear that the market is developing in line with the needs of NEST members, the government will consider the most appropriate response, including enabling NEST to offer a fuller range of solutions in the future. The government also thinks it appropriate, where in the interests of its members, that NEST continues to develop the ideas behind its retirement blueprint, including working with partners in industry to drive innovation in the area.
The government will take forward proposals to allow employers to contractually enrol workers into NEST. Other changes to extend access, including opening the scheme to individuals and transfers from other schemes without a link to automatic enrolment will not be pursued at this time.
Transfers into and out of NEST
From 1 April 2017, changes to the National Employment Savings Trust Order 2010 and to the National Employment Savings Trust (NEST) Rules will allow individual and bulk transfers into and out of the scheme in prescribed circumstances.
In a Written Ministerial Statement published by the Department for Work and Pensions (DWP) the Under Secretary of State for Pensions, Richard Harrington confirmed the charge structure that will relate to such transfers.
The trustee of NEST (the Trustee) makes an annual charge on funds under management. This has been set by the Trustee at 0.3%. In addition, to help cover the set up costs, the Trustee makes a charge on contributions into the scheme from both employers and employees. This has been set by the Trustee at 1.8%.
Harrington said that levying a 1.8 per cent contribution charge in these circumstances would be punitive for members and would discourage pot consolidation and that he expects the contribution charge that will apply to transfers to be less than 1.8 per cent and place no lower bounds on its level.
In the case of bulk transfers, the Trustee will also have the option of recovering the costs of administering the transfer from the employer.
Harrington finished his statement saying that he had been assured by the Trustee that when setting the level of the charges to apply to transfers, it will take into account its target market and public service obligations. Harrington is putting in place arrangements to enable him to keep this under review
NEST Trustee
The NEST Trustee has confirmed that, when the restrictions on transfers into and out of NEST are lifted (1 April 2017):
-
there will be no change to the current flat 0.3 per cent AMC applied to funds transferred by members who want to move money into their NEST account from other schemes
-
as currently, there will be no exit charge for members who want to transfer their NEST pot to another scheme.
The limit on contributions into NEST will also be removed from 1 April 2017 (current limit £4,900).
Read the government response to the Call for Evidence on NEST: Evolving for the Future.