NEST, the Government’s controversial auto enrolment scheme is still under dispute as the pension review gets underway.

As part of the Government’s ‘Making auto enrolment work review’ The Department for Work and Pensions is carrying out research to test the feasibility of the NEST scheme. The review also forms part of the changes to the pension sector, which were promised during June’s Emergency Budget.

NEST, or National Employment Savings Trust, was introduced by the previous Labour Government and a way of getting low income employees enrolled on to a company pension scheme if one was not already provided as a way of encouraging retirement savings.

But the new Government decided to conduct a thorough review of the proposals, which have been criticised by many for being too costly and not necessarily offering low income workers a better deal.

Industry experts have responded to the DWP’s attempt to review NEST with mixed views.

Dr Ros Altmann , independent pension policy advisor, said the proposed rules around auto-enrolment were too costly and complex.

She says that the pension review should be seen as the Government’s opportunity to fully overhaul the pension system, not to simply focus on auto-enrolment.

She added that auto-enrolment should not start with a ‘big bang’ approach. “We should first enrol into existing pension schemes which are almost all better than the statutory minimum,” she said.

And the cost of the scheme needs considering too: “The idea of Nest is good, but the risks and costs to the exchequer and to workers of introducing it, as currently designed are too high. A 2% initial charge makes Nest’s cost advantage relatively weak, at least for the coming few years. That makes Nest a less attractive proposition for all concerned.”

But for the Investment management Association Nest cannot come soon enough. Jonathan Lipkin, Head of Research at the IMA, said: “The IMA continues to support the automatic enrolment reforms and encourages the Government to avoid any further delays to implementation.  We believe there is currently no alternative to NEST that can deliver the desired depth of coverage for the target market at a comparatively low cost.” 

However, he also warns against making Nest compulsory, saying workers should be able to opt out.
 
“If changes are introduced that affect the range of people covered by automatic enrolment, ensuring a right to voluntary enrolment is essential,” he added.

And the Association of British Insurers has supported Nest but says areas need amending for it to work effectively.

The ABI wants the current auto-enrolment band of age 22 up to state pension age to be retained and believes no one should be excluded based on the size of the firm they work for.

But it says auto-enrolment should only apply to those earning £10,000 per annum or more.

The Government’s pension review is expected to continue until the autumn.

© Fair Investment Company Ltd