Where high pension contribution rates and relatively high salaries coincide, the restrictions mean the national employment savings trust (Nest) does not currently work as a single-scheme solution.
If an employer wants to pay 10% for staff earning £50,000, it cannot do so in Nest. But, in our experience, this is not the main reason most large employers have chosen to continue their own scheme.
Some fear using Nest could make them look like they are doing the minimum, even if they are paying more than they have to. Others feel that, although Nest’s charges are competitive, they can get a better deal for staff elsewhere. For some, the Nest restriction that causes the most problems is the ban on transfers out.
The government is not exactly getting its skates on to make any changes. As the Department for Work and Pensions recognises, there is a supply bottleneck around the corner: small and medium-sized employers could find few, if any, alternatives to Nest willing to take them if they do not start looking early.
Will Aitken is senior consultant at Towers Watson