The Department for Work and Pensions (DWP) has launched a consultation into the future of the National Employment Savings Trust (NEST) with the intention of offering new, more flexible options to members on retirement.
What is NEST?
NEST is the workplace pension set up by the Government specifically for employers of low to moderately paid earners looking to comply with their auto enrolment obligations.
Why the change?
The DWP believes that reforms may be needed to NEST to reflect developments in the industry since the introduction of auto enrolment back in 2012, in particular the flexible access reforms that came into effect in April 2015.
What are the proposed changes?
The call for evidence seeks views on a number of proposals, including:
Expanding access to NEST – suggestions include:
- Allowing employers to contractually enrol their entire workforce into NEST (at present, an employer cannot enrol an employee into NEST that has no eligibility under automatic enrolment)
- Allowing individuals to join outside of their employment contract (in the same way individuals can currently decide to start saving into their own personal pension product in addition to any scheme their employer offers access to)
- Allowing bulk transfers into NEST from schemes where the employer does not currently participate in the scheme (at present, NEST’s rules only allow bulk transfers where the relevant employer is also using NEST to meet is auto-enrolment duties)
Expanding NEST’s retirement services – currently NEST permits members to take uncrystallised funds lump sums but does not offer flexi-access drawdown or provide annuities. Given that many private-sector pension schemes are unable to offer the full range of decumulation options, there may be an argument for making the full suite of options available under NEST and allowing individuals to transfer into the scheme at their point of retirement.
What impact may the proposals have if implemented?
Extending both the access to, and the services offered by, NEST will better support the delivery of the freedom and choice reforms that were introduced in April 2015 and help to maximise consumer choice.
Other auto enrolment providers have expressed concerns that allowing NEST – established with public funding to provide an auto enrolment option of last resort – greater flexibilities will distort the market.
Other pension providers offering access to freedom and choice flexibilities may also be concerned about NEST offering a low cost alternative to their products.
When will we hear the outcome?
The call for evidence closes on 28 September 2016. The DWP says it will publish a formal response within three months of that date.