Government seeks views on whether NEST pension scheme constraints restrict choice

It has put out a call for evidence on the effects of the low-cost scheme's annual contribution limit and restrictions preventing employees from transferring their existing savings into the scheme. Views will be sought until 28 January.

"We are already seeing the positive effect that NEST is having on the world of pensions," Pensions Minister Steve Webb said. "Workers are being signed up for workplace pension schemes at much lower charges than in the past and firms have much more choice of provider than in the past. But we need to make sure that this continues as automatic enrolment moves on to smaller firms and that the constraints on NEST are not a barrier to good consumer outcomes."

NEST was designed to be a low-cost, trust-based occupational pension scheme for people who were largely new to pension saving as a result of automatic enrolment. It has a public service obligation to ensure that everyone eligible for automatic enrolment can access a low-cost pension and has a particular focus savers not well served by the existing market such as low to moderate earners, those with smaller employers and firms with a high turnover of staff.

A report by the House of Commons' Work and Pensions Committee earlier this year recommended that the restrictions be lifted, saying that the contribution cap put companies with higher-paid employees at a disadvantage. Allowing employees to pool together small pension pots they may have accrued in previous jobs would cut down on unnecessary administration, its report added.

The Government said previously that it would "reflect further" on calls to remove the restrictions, however it warned that to do so merely to increase take-up of the scheme could be in breach of EU state aid rules. It added that the evidence that the restrictions were acting as a barrier to sign-ups was "not conclusive", and that it would not propose any changes without understanding their impact.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that it was likely that the restrictions on the scheme would ultimately be removed.

"The restrictions were introduced following lobbying from the insurance industry," he said. "Pension providers were rightly nervous about the Government setting up a pension scheme in competition to their own offerings. However, the balance of opinion is moving from fears of unfair competition to ensuring that NEST can serve its purpose."

The largest employers began automatically enrolling their workers into NEST, or into their own occupational pension schemes which meet minimum requirements, from October this year. Smaller employers are set to follow in a staggered implementation programme, running until April 2017. Once the process begins, employers will be required to automatically enrol 'eligible jobholders' aged between 22 and the State Pension age who are earning more than £7,475 a year.

Other constraints placed on NEST to ensure it met the needs of lower earners and smaller employers would not be changed, the Government said. The scheme will continue to accept everyone automatically enrolled into it, even if their income does not cover the cost of their account, and will continue to offer good value with no differential pricing. In addition, NEST is prohibited from offering other products, such as life insurance, as a way of boosting margins.