Current policy is that new duties will be staged in between 2012 and 2016, requiring all employers to designate a pension scheme into which all of their employees, aged between 22 and state pension age, should be automatically enrolled, so long as they are earning above an annual earnings threshold (the Pensions Act 2008 sets this at £5,035, equivalent to £5,732 in today's terms). Upon automatic enrolment, a minimum of eight per cent of earnings within a band would be contributed to the pension, with at least three per cent coming from the employer. This policy is designed to maximise private pension saving by individuals without imposing compulsion. The right to opt out will remain. This review looks at the scope of automatic enrolment and whether a new national pension scheme (National Employment Savings Trust or NEST) needs to be put in place for it to work. One of the most significant recommendations that it makes is that people should only be automatically enrolled once they reach the income tax threshold (which will increase to £7.475 in 2011) but that contributions should be on earnings in excess of the National Insurance earnings threshold (£5,715 in today's prices). There should be no changes to age thresholds and automatic enrolment duties should apply to all employers, regardless of size, as now. Employers should be given three months before auto-enrolment to ease the burden on companies. If staff choose to enrol before the three month period then companies will have to make contributions

The Government established NEST as a low-cost pension scheme to help deliver the auto-enrolment programme and to address a market failure in the pensions industry which meant that many employers and employees were unable to access low-cost, good quality pension provision. However, the Committee believes that certain restrictions placed on NEST will create complexity for employers and will disadvantage some employees. The Committee's report recommends that, if state aid rules allow, the Government should remove the following restrictions: the cap on the annual contributions an individual can make to a NEST scheme; and the ban on individuals transferring existing pension pots into NEST. The Committee further urges the Government to proceed with its plans for State Pension reform, introducing a flat-rate State Pension and reducing the level of means-testing without delay. The report also highlights the difficulties and complexity employers and employees currently face in comparing the fees and charges applied by pension providers and recommends that, from 2013 onwards, if some auto-enrolment schemes still have hidden charges, or charges that represent poor value for money, the Government should use its powers to intervene. Auto-enrolment will impose new costs and may be particularly challenging for small employers however the Committee considers that the Government has taken appropriate steps to minimise the impact on businesses through its gradual and flexible approach ("staging and phasing") to implementation. Exempting small employers would create significant complexity, as well as excluding many employees from the benefits of workplace pension saving

NEST was established to underpin automatic enrolment by providing a workplace pension scheme for any employer who wished to use it to meet their automatic enrolment duties. It was set up to focus on a target market of smaller employers and low to moderate earners, who the existing pensions industry had found it more difficult to serve. To ensure that NEST remained focused on this target market, two constraints were placed on the scheme - a cap on annual contributions and restrictions on transfers in to and out of the scheme. These constraints were always a temporary measure and there is already a statutory requirement to review their effect in 2017, once roll out of automatic enrolment is complete. The Department for Work and Pensions invited views and evidence pertinent to whether the annual contribution limit and the transfer restrictions worked in the way that they were intended, or whether there was a case for change. The Government's view is that at this stage in implementation, the contribution limit will not restrict the way in which people save or cause employers to choose higher charging or poor quality schemes. Nor should the contribution limit have any impact on the vast majority of SMEs. The Department, in co-operation with NEST, the pensions industry and employer groups needs to communicate clearly and effectively that the constraints are not a real barrier to SMEs using NEST to meet the automatic enrolment duties and that they will be removed in 2017

For auto-enrolment to continue to work successfully, NEST must be allowed to thrive. Employers want simplicity. They want to be able to choose one pension scheme to cover all their employees. The cap on annual contributions to NEST means that employers can't opt for NEST for their higher-earners or if they want to make more generous contributions. So some employers are dismissing the NEST option and choosing a private pension provider who can offer a scheme for all their employees. NEST is required to be a low-cost scheme and to offer good value. Other pension providers don't have this same obligation. There is therefore a risk that the restrictions will mean some employees are prevented from having access to the best value pension scheme available. The Government has already made clear that it will need to "fix" the issue of transfers in and out of NEST if it wishes to implement its "pot follows member" solution to the current problem of small pension pots. Amongst recommendations made in the report is that the Government should make it a priority to gain certainty on the conditions for the European Commission's approval of state aid for NEST, to ensure that this is no longer perceived to be an obstacle to removing the restrictions. Auto-enrolment begins for medium and small employers from 2014. They will begin preparations a year to 18 months before then. Now is the time for action to be taken, it cannot wait until 2017.