UK - Removing restrictions placed on the National Employment Savings Trust (NEST) "would not be lawful", according to the UK government, which today appeared to dismiss calls by a cross-party committee to allow transfers into and out of the new trust-based scheme.

Releasing its response to the work and pensions select committee report on auto-enrolment, the government defended last year's decision to delay staging dates for small and medium-sized enterprises (SMEs) being made "in recognition of tough economic times".

It added that, if the fees levied against deferred members were seen as too high as auto-enrolment was launched, it would consider taking action.

In March's report, the committee backed the removal of restrictions placed on NEST, saying that if legislation was not amended, the scheme could fail to address the "market failure" it was launched to solve.

However, the government appeared to rule out any such changes, pointing out that NEST was "one of many" schemes able to meet an employer's auto-enrolment needs, and that its purpose was to fill the supply gap for low and moderate earners.

"The evidence that NEST restrictions are acting as a barrier is not unequivocal, and the government is conscious that the restrictions were designed to ensure that NEST's focus remain on its target market," it said.

"It would not be lawful for the government to remove the restrictions simply to increase take-up of NEST - there would need to be evidence that such action is required to address market failure."

abour MP and shadow pensions minister Gregg McClymont said he was "disappointed" at the amount of time the government was taking to review the issue.

"An objective review will find there is scope to lift the restrictions," he said.

In hearings late last year, both Legal & General's Adrian Boulding and ATP-backed Now Pensions argued that removing the restrictions would, in fact, have a detrimental impact on the auto-enrolment fund, with critics saying it risked losing its purpose.

Speaking with IPE today, Boulding, the company's pension strategy director, said he welcomed the government's findings, as removing the restrictions would equate to providing further state aid.

"Just reflecting on why we fight tooth and nail for this, the reason why the European Union has these state aid restrictions is to protect the shareholders of the private sector pension providers, " he said, adding that the shareholders were those who had done the "right thing" by already saving through their pensions, thus gaining exposure to the stock market.

Morten Nilsson, chief executive at Now Pensions, added that while NEST was initially launched at a time when private providers had shown little interest in low-income earners, many had now entered the market and were competing directly with the scheme.

"What is really needed for everyone involved in auto-enrolment is that we stick to the plan, so having the opportunity to now get auto-enrolment to work without any further changes - so both employers and providers, as well as anyone else involved, can get this to be a success," he said when told about the government's decision to stand by the status quo. 

"Right now, we just need to be able to know where the goalposts are and get the game started."

L&G's Boulding was eager to highlight the government's commitment to tackle the fee bias towards active members, noting their comments that if the situation did not change, it would take action.

He said it was "bad practice" and "horrendous" where there was a noticeable difference in fees.

"This is a warning shot across the bows of any pension scheme that is using active member discounts," he said.

Asked whether this would not be addressed by the consultation on small pots - investigating various options that could see pension pots follow employees to the next employer or potentially placed in an aggregator scheme - he was dubious.

"That presumes that we will arrive at some automated solution to the small-pot solution, and that is not obvious," he said.

"It's not always in people's interest to move the pot on," he said.

He cited the example of those active in the building and construction industry and the likelihood that they would, in regularly changing jobs, often re-enter the B&CE scheme.

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