Mother of NEST trashes 'pro-industry' pension transfer ban

Baronness Jeannie Drake, the "mother" of the auto-enrolment and National Employment Savings Trust (NEST) reforms, has told the Work and Pensions Select Committee the ban on transfers into NEST would work against savers.

Drake, who was acting chairman of the trust's predecessor the Personal Accounts Delivery Authority until 2010, said: "[The ban] can only support the industry, it cannot support employees."

She also criticised the £3,600 cap on annual contributions to NEST, which, combined with the three month grace period employers have before they must enrol a new worker, will prevent casual workers from building a decent pot, she said.

It will add complexity and expense to employers operating more than one scheme, she added.

Short service refunds for contract-based schemes, which pensions minister Steve Webb has vowed to address, could also make trust-based schemes such as NEST less attractive to employers, according to Drake.

Her concerns were echoed by other architects of the reforms who said constraints on NEST risk undermining auto-enrolment.

Institute of Fiscal Studies director Paul Johnson, who co-wrote the government's Making auto-enrolment work review, said the cap on annual contributions to NEST sent a "very odd message" to savers.

David Pitt-Watson, chairman of Hermes Focus Asset Management, said the cap on contributions will cost the taxpayer £100m.

In May, Pitt-Watson publicly attacked the legislation for failing to put enough quality controls in place to protect employees who were auto-enrolled into private schemes.

Today, Drake expressed concern at the lack of a quality test on private schemes deemed to qualify as an alternative to NEST.

She called on the secretary of state to extend the quality standards to include a duty of care toward the pots of deferred members and a credible investment strategy.

Despite these reservations, all three participants agreed auto-enrolment and NEST would have a positive impact on saving.

"We need to improve what is a very inefficient pension system, and NEST is a very good step in the right direction," said Pitt-Watson.