Nest small pot cap is a ‘Berlin Wall’, says senator
The UK government will have to scrap the transfer prohibition and contribution cap on its low-cost workplace pension scheme to make it successful, Australian senator Nick Sherry has claimed.
The Labour senator for Tasmania and minister for superannuation – Australia’s auto-enrolment equivalent – branded the transfer and contribution restrictions on the government’s National Employment Savings Trust the ‘Berlin Wall Provisions’, because “it is inevitable they will end”.
Mr Sherry, who regularly consults the UK government on auto-enrolment and Nest, said in Australia, where enrolling into a workplace pension scheme has been compulsory for 20 years, the problem of small pots had been a “very sorry story”, from which the UK should learn.
He said: “We let this problem grow. Compulsion does not mean people are active. We made it so easy for them to consolidate their pension pots online, but millions fail to do it.
“In the UK, a similar problem will emerge. Notwithstanding there are 1m small pots in the current system, the introduction of Nest, new competitors and the shift to DC will accelerate this.”
To tackle the problem, the Australian government is implementing legislation where accounts that have been dormant for at least two years will be automatically consolidated into the member’s current active account.
New employees who do not choose an existing account will have the default, low-cost MySuper account created for them, into which any accounts with balances of less than A$1000 (£636.5) are transferred. This threshold is set to increase to A$10,000.
However, under the current rules governing Nest, this type of consolidation will not be possible because of the ban on transfers and the contribution cap.
He said: “In DC provision you need to consolidate and provide automatically for those who fail to do it. The UK will have to have a default consolidation provision. It is good that pensions minister Steve Webb is looking at this.”
A spokesman for the department for work and pensions said: “As Mr Sherry has identified, under automatic enrolment, an issue would arise with dormant pension pots left behind when people move jobs. However the Australian and UK systems are different and any UK solution needs to be suitable, which is why we launched the consultation in December. We are working through a range of responses expressed on the potential options, including the role of Nest, and we will respond to the consultation in the summer.”
Helen Dean, managing director of scheme development for Nest, said: “If the government concludes that Nest should play a part in the solutions it puts in place to deal with small pots, it will need to consider what that means for the restrictions currently placed on Nest.”
Robert Clarke, IFA for Norwich-based Almary Green, said: “It’s worrying that many medium and smaller companies are still burying their heads in the sand and hoping auto-enrolment will go away. Planning ahead they can mitigate the cost.”