5.2.2 Workplace pensions: NEST

Figure _unit5.2.3 Figure 4

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This is the logo of 'nest' – the National Employment Savings Trust.

Figure 4

In 2014, the UK government announced plenty of policy initiatives for pensions. One came with the announcement that, from 2017, those in state-backed workplace pension schemes, like the ones examined in the previous section, would have greater scope to invest in the NEST (National Employment Savings Trust) pension scheme.

NEST is the public organisation set up by the Pensions Act 2008 to offer pension products for employers offering workplace auto-enrolment schemes.

NEST started to take on pension fund members from 2012, when auto-enrolment into workplace pensions started to be offered by the larger employers in the UK. Under this scheme employees have to take action to opt-out of a workplace pension if they wish to avoid auto-enrolment. To date, more than 1.5 million workplace pension savers are invested in NEST.

Currently, there is an annual limit of £4600 for contributions to NEST pension schemes and transfers into NEST products from other schemes are not allowed. The rationale for these restrictions was to ensure that NEST did not unduly exploit the competitive advantage of being a receiver of state funding, which cuts the costs of running its business and makes it a low cost pension provider. The announcement of the removal of restrictions came after a Brussels ruling that lifting the cap on NEST contributions would not breach EU rules on state subsidies.

The move has been welcomed in many quarters, although some question whether applying it from 2017 will be too late, since by then all employers will have to offer their employees auto-enrolment into a suitable pension scheme. Some have also questioned whether it will hit private sector pension providers at the low-cost end of the pension market (in terms of fees charged).

The current annual limit of £4600 actually means that, assuming an 8% contribution rate, only those earning over £57,500 are set to benefit from its removal. Abolishing restrictions to transfer-in money from other pension pots may be a greater attraction for NEST scheme members.