Mercer welcomes the Work & Pensions Committee report on automatic enrolment in workplace pensions and the National Employment Savings Trust (NEST). However, the consultancy has warned that whilst the suggestion to lift the contribution cap and the ban on being able to transfer funds from other arrangements into NEST earlier than planned may help it compete with the other new low-cost pension providers, it could bring it into conflict with employers’ existing pension arrangements.
Paul Macro, Head of Defined Contribution in Mercer’s Retirement Business in the UK, said: “The restrictions were initially put in place to avoid impacting employers’ existing schemes. Removing these restrictions might result in employers shutting down perfectly good schemes to move to NEST. Whilst we expected the restrictions to be reviewed in around 2017, it’s concerning that this may now be brought forward to before the first official staging date of October 2012. Lifting the restrictions to allow higher contributing members to use NEST should prompt NEST to reconsider its investment range as these members are unlikely to be satisfied by the investment options on offer.
“Lifting the ban on transfers would ease the consolidation of small funds and makes sense. However, as things currently stand employees can only access NEST through their employer, so a much wider change would be needed for individuals to be able to set up a NEST account for consolidation purposes if their employer was not using NEST.”
Commenting on the recommendation to choose solutions that provide value for money to employees, Mercer agreed in principle but highlighted the difficulty with judging value. Mr Macro added: “It is important to bear in mind though that low cost doesn’t always equal value for money and certainly does not necessarily produce the best outcome for members. The idea of a ‘compare-the-market’ type website is an interesting idea but unlikely to be helpful to employers who may come under pressure from employees to change providers based purely on cost when there may be other very good reason to stay put.”
“Price is important but not the absolute single factor in determining the ultimate benefits of a pension arrangement,” concluded Mr Macro.
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