The government will scrap restrictions on a taxpayer-funded pension provider from 2017.
National Employment Savings Trust (NEST) was launched as a low-cost scheme for auto-enrolment, which requires all businesses to provide workers access to a pension scheme.
Currrently the provider, which received loans from the European Commission (EC) and the Department for Work and Pensions (DWP) and is obligated to allow any employer to use its scheme, cannot receive more than £4,600 a year from each member.
Transfers of funds in from and out to other providers are also banned under the rules, which were put in place to avoid market distortion.
Pensions minister Steve Webb confirmed the restrictions will be lifted in 2017, allowing employers and workers to pay more into the scheme. It will also enable companies with high-earning staff to use NEST as an auto-enrolment provider for their full workforce.
The success of auto-enrolment means restricting NEST to ensure it does not have a competitive advantage is ‘no longer relevant’, Hargreaves Lansdown head of pensions research Tom McPhail said.
‘Opt-out rates have been lower than many had forecast and so far the pensions industry has proved itself capable of working with NEST to meet market demand,’ he said.
However, Damian Stancombe, head of workplace health and wealth at Barnett Waddingham, said NEST ‘is essentially an artificial provider’ that is effectively funded by taxpayers ‘to the tune of £239m-plus’.
‘The removal of the contribution limit should only be allowed if the repayment of NEST’s debt to the government is properly clarified,’ he added.