Affordable Access

Access to the full text

Would lifting the income contribution cap to NEST and the ban on transfers-in be contrary to EU state aid rules?

Authors
  • Tarrant, Dr Andy
Type
Published Article
Journal
Pensions: An International Journal
Publisher
Palgrave Macmillan UK
Publication Date
Nov 01, 2012
Volume
17
Issue
4
Pages
191–207
Identifiers
DOI: 10.1057/pm.2012.39
Source
Springer Nature
Keywords
License
Yellow

Abstract

This analysis is a contribution to a debate opened by the Department of Work and Pensions Select Committee. On 15 March 2012 it published its report, Automatic enrolment in workplace pensions and the National Employment Savings Trust, HC 1494. In the report, parliamentarians from the three major parties recommended unanimously that the income contribution cap and the ban on transfers-in to NEST be removed as long as this is consistent with EU state aid rules. In light of this statement, I have examined whether the removal of these restrictions would be consistent with EU state aid rules or not. In short, my view is that removal of these particular restrictions is likely to be consistent with EU state aid rules. I have heard the view that an unfettered NEST might dominate the pensions market. I set out why the characteristics of demand and supply, including the nature of the Public Service Obligation imposed on NEST, make this implausible. Given the oft-expressed concern that the UK ‘gold-plates’ EU requirements, it may be useful to underline that the burden of proof faced by the United Kingdom in lifting the restrictions is not to prove that this is necessary beyond any reasonable doubt. Instead, the obligation on a Member State is to show that such a step is a reasonable step in the light of the information that is currently available. The evidence available today is that the restrictions are impeding NEST's ability to act as a service of general and economic interest. Given the importance of NEST in ensuring that low and moderately earning employees save into pensions, in a context where only 33 per cent of private sector employees are saving into an occupational pension, it would not be in the public interest for the UK authorities to unilaterally adopt a higher standard of proof and to choose to wait until they can prove beyond any reasonable doubt that the restrictions damage NEST's ability to meet its public service obligation. By that time, many employees would already have been signed up to pension schemes that are not in their best interests and NEST may struggle to achieve the scale necessary to minimise its costs for members. This would not be a recipe for ensuring a low opt-out rate and the success of the policy of auto-enrolment. EU law gives Member States wide discretion to define Services of General Interest (‘SGEI’). A no-frills, universal-enrolment NEST service would still be a properly defined SGEI even if the current restrictions are lifted. If the start-up support given to NEST is proportionate – and there are mechanisms in place to ensure that it will be – there is no reason to assume that merely lifting the current restrictions will infringe EU state aid law.

Report this publication

Statistics

Seen <100 times