My Lords, the amendment in my name and that of my noble friend Lord Browne would require the Government to lift the restrictions on the National Employment Savings Trust, or NEST, on transfers made before 30 August 2014, and to notify the European Commission that they wish to lift the ban on the transfers and the contribution cap. Following this, and within 14 days of the notification, the Government would be required to make a Statement to Parliament.
The Government’s decision to legislate now but not to lift the restrictions on NEST until 2017, and to refuse to lift the ban on transfers in and out until pot follows member commences, is cause for real concern. Crucially, it cannot be in the public interest for the Government to proceed in such a way. Incidentally, I am sure that the Minister has noted the recommendation from the Work and Pensions Select Committee that the restrictions be lifted without delay.
I agree that there was a good case for having restrictions before it was clear how the market would progress, but these restrictions are no longer justified. The auto-enrolment market is now well under way and NEST has not taken all the business, which had once been a concern among some. Indeed, the restrictions have meant that NEST has been able to get less of that low and medium-earning segment than it otherwise would have done, which will contribute to the increase in the number of small dormant pots.
While the contribution limit will be lifted from 2017 by legislation, the restriction on individual transfers in and out of NEST will be left to coincide with the beginning of pot follows member. Whether the income cap is such a problem up to 2017, the continuing ban on transfers in and out will be. The DWP’s own research found that more than 80% of employers want one provider. However, the ban means that any employer who is thinking about using NEST but currently has a pension scheme of any type will be discouraged from using NEST because they cannot transfer in the pension assets in their current scheme. The Government are encouraging employers to use NEST but, by refusing to lift the ban on transfers in and out right away, they are discouraging those employers who currently have a scheme elsewhere. In this way, NEST is being disadvantaged against many of its market competitors.
Our amendment would enable employers who currently have an existing pension scheme to take their employees with their existing savings into NEST. While there remains a ban on transfers in and out, those employers cannot use NEST, or can use it only by leaving any existing pension pots in a stranded place, with a different scheme. Has the Minister considered that aspect of the Government’s decision?
It appears that what the Government are actually doing is ensuring that the restrictions on NEST remain until every employer has staged. By the time the NEST restrictions are lifted, auto-enrolment will be complete. There are a number of significant problems with the Government’s position. First, as the pensions industry acknowledges, NEST provides best-practice standards, which has obliged the insurance companies to improve their standards. Yet NEST is disadvantaged in competing for many of the low and medium-earning
savers for whom it is designed. That may well result in customer detriment for many of those workers. Secondly, the Government’s proposals fail the public interest test. If large numbers of low and medium-earning employees cannot use NEST, it is thereby being prevented from delivering its public interest obligation. Thirdly, restricting NEST impacts on its financial position and makes it harder to pay back the state aid earlier and thereby allow it to reduce its charges even further. This again undermines NEST’s public interest obligation and its mission to deliver a low-charge, high-governance pension proposition. Finally, the rest of the industry is reported in the pensions press as increasingly not having the capacity or, possibly, desire to cope with all the employers who are still to stage in. Having had, it is said, the advantage of the NEST restrictions in place while larger employers move in, the rest of the industry is perhaps less interested in the smaller end of the market.
I trust that the Minister will be able to explain why the Government have so far refused to lift the restrictions. However, whatever has been said in the past, I urge the Minister to accept this amendment; but if he cannot do so today, I hope that he will take it away and reconsider before Report the strong case for these restrictions to be lifted—not in a few years’ time but now, before auto- enrolment is complete. I beg to move.