Go-ahead granted for savings limit and transfer block to be removed.
The Government has confirmed the annual contribution limit and transfer restriction for pension savings with the National Employment Savings Trust (NEST) will be lifted from April 2017.
The state-backed pension scheme currently only allows workers to save up to £4,600 a year and restricts individual users from transferring old pensions into their NEST pension.
The Government has been pushing to lift these key constraints since last year but needed the go-ahead from the European Commission.
In a written ministerial statement, pensions minister Steve Webb announced the EC had confirmed it would not oppose the move, which he called a "victory for consumers".
Why are NEST savers restricted?
NEST was set up by the Government to support automatic enrolment (also known as workplace pensions).
This is a revolutionary initiative which automatically enters eligible workers into a workplace pension. It’s been designed to kick-start a savings habit and get people thinking about their retirement.
Those aged 22 or over (and below State Pension age), not already in a qualifying scheme in the UK and earning more than £10,000 (2014/15) a year qualify.
Thanks to workplace pensions, around 1.2 million employers will be required to set up pension schemes for their staff and it’s estimated the process will bring around nine million people into a workplace pension by February 2018.
NEST was set up to facilitate this mammoth task by providing a quality low-cost pension scheme, to be used primarily by smaller employers and those on low or moderate incomes.
As it is obliged to accept any worker automatically enrolled by their employer, the scheme receives state aid in the form of a subsidised loan from the Government.
The annual savings limit and transfer restrictions were originally imposed to ensure NEST focused on its target market and to minimise any competitive advantage that could be gained through the support it received.
For more read Workplace pensions: what it means for you.
Why are the changes significant?
Currently 1.5 million workers save into a workplace pension using NEST. By 2017, when the changes are due to come in, that’s expected to have risen to four million as workplace pensions gather pace.
By this time NEST will be one of the main pension schemes employers go for and workers are required to save into, so it's important it's up for the job.
Once the restrictions are lifted the scheme will be on a level playing field with other pension scheme providers.
It will allow those enrolled to take responsibility for their retirement by allowing them to save more and give people the chance to engage with their savings by giving them the option to move their existing pot from another provider.
What happens now?
Over the autumn the Government will start a short technical consultation on draft legislation to remove the annual contribution limit and transfer restrictions on 1st April 2017.
In October of 2017 the minimum total contribution rises from 2% to 5%.
However, the Government says it will retain the option to remove transfer restrictions ahead of this deadline from 1st October 2015.
This would coincide with the introduction of automatic transfers, a new system that will move pension pots when workers change jobs.
More on pensions:
Workplace pensions: What it means for you