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Employers 'largely ignoring NEST'

19 March 2012

Employers "largely ignoring NEST" Posted by Editorial team

Employers are largely ignoring the National Employment Savings Trust (NEST) set up by the government to help businesses switch to auto-enrolment later this year.

Payroll departments in the nation's largest businesses will be obliged to automatically sign some or all of their workers up to pensions from October 2012, while smaller companies will be phased into the initiative over the coming years.

This is according to the Towers Watson Governance survey 2012, which found only four per cent of firms have definite intentions to use the facility as their main vehicle for retirement saving.

Meanwhile, over two-thirds plan to stick with their existing defined-contribution (DC) pension schemes.

NEST provides a single retirement fund for personnel that they can then continue to pay into, even if they change jobs, as long as their new employer also uses NEST.

However, it appears from the survey results that employees may find it hard to take advantage of this benefit, as so few enterprises are deciding to take on the scheme.

Furthermore, it seems fiduciaries are also not necessarily providing the best product for those paying into pension schemes, with two-thirds admitting their investment fund was not tailored to their specific membership.

"It is ... debatable whether the particular needs and wants of DC members are ever really met or justified by simply offering a huge number of investment funds," senior consultant at Towers Watson Nick Cook stated, with the company reporting many providers still offer over 50 options to choose from.

However, he noted this is changing, with many fiduciaries trying to make their products more appropriate for their client's needs and "want to actively help employees get the most from their plan".

"The default option is where most DC members end up, so this focus on default design can add appreciable value to employees' standard of living in retirement," Mr Cook claimed.

One reason employers may be deciding against using NEST is because of the contribution cap and pension transfer ban associated with the service.

The House of Commons' work and pensions committee recently urged the government to drop these rules urgently in a report called Automatic enrolment in workplace pensions and the National Employment Savings Trust.

MPs warned banning the transfer of existing savings into NEST could introduce obstacles to both workers and companies wishing to merge several small pension pots, while having a limit on annual contributions would mean firms with higher-paid employees could not use the scheme as its core retirement fund programme.

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