The government should remove the cap on annual contributions and the ban on transfers in and out of Nest as a “matter of urgency”, the Work and Pensions Committee has stated.

In a report published today entitled Lifting the restrictions on Nest, the Work and Pensions Committee emphasised that “restrictions were likely to reduce the effectiveness of Nest in addressing the market failure in the pensions industry that it was designed to resolve”.

The report stated that some industry figures have argued that restrictions should remain in place “because they were necessary to ensure that Nest remained focused on its target market”. However, in a counter statement the Committee said: “Our view is that Nest’s public service obligation, to be available to all employers who wish to use the scheme to meet their auto-enrolment requirements, and to accept all individuals automatically enrolled into it, already ensures that Nest will retain this focus. The pensions industry’s concerns therefore appear to us to have little foundation.”

Further, it said that the ban on transfers is preventing the consolidation of small pension pots and the contribution cap is preventing employers from offering a single workplace pension as well as increasing complexity levels for employers and employees.

Work and Pensions Select Committee chairman Anne Begg commented: “Since auto-enrolment began, the case for lifting the restrictions has become even more powerful, and the need for action more pressing. For auto-enrolment to continue to work successfully, Nest must be allowed to thrive.

“Employers want simplicity. They want to be able to choose one pension scheme to cover all their employees. The cap on annual contributions to Nest means that employers can’t opt for Nest for their higher-earners or if they want to make more generous contributions. So some employers are dismissing the Nest option and choosing a private pension provider who can offer a scheme for all their employees."

Begg concluded by stating that action cannot wait until 2017 and that the government “must act quickly to provide the clarity that employers need in order to make the right choice for their employees”.

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