It is argued that savers in the state-backed scheme should have access to low-cost products, which easily convert money from pension pots into retirement incomes.
However it has been decided that additional services will not be offered at this point, as the market is still in its infancy, and members currently do not possess a substantial amount of savings.
Aegon head of pensions, Kate Smith, said: “We welcome the government’s decision not to build an in-house decumulation solution as this would have been premature while the private sector market is still developing.
“Only two years on from the pension freedoms, the market is still young and is already innovating to deliver retirement solutions to all sectors of the market. Currently NEST members’ pension pots are very small, and this is likely to be the case for some time.
“For the foreseeable future, most members will seek to cash in their NEST pots rather than buy a retirement income product such as drawdown or an annuity, unless they have pension savings elsewhere.”
NEST is a trust-based defined contribution (DC) pension scheme, established in 2010 to support the introduction of automatic enrolment.
It currently has 4 million members, but the government expects it to be one of the biggest pension schemes in the UK in terms of membership once minimum contribution rates increase.
With more savers coming to retirement with DC pension pots, and pension freedom changes in 2015, there are concerns that today’s decision will leave many without a secure income in old age, instead having to choose between cashing in their savings or buying expensive drawdown products.
TUC general secretary, Frances O’Grady, said: “It is deeply disappointing that ministers have caved in to vested interests. Pension savers have been ill served by the traditional pensions industry for decades, being shoe-horned into inappropriate products, often with high fees that have left them worse off.
“Those reaching retirement in the coming years desperately need easy access to suitable, good-value products to see them through their old age.
“The announcement that ministers won’t allow NEST to help savers who need it means the risk that government just stands by while more workers reaching retirement fall victim to rip-off products and outright scams.”
The government has said that they will continue to monitor the market, and if it is not clear that it is developing in line with the needs of members, will consider enabling NEST to offer a fuller range of solutions in the future.
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