National Employment Savings Trust (Amendment) Order 2026

Baroness Sherlock Excerpts

Monday 13th April 2026 Grand Committee

Moved by

[Baroness Sherlock]

That the Grand Committee do consider the National Employment Savings Trust (Amendment) Order 2026.

Relevant document: 54th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, this statutory instrument was laid before the House on 26 February. Automatic enrolment has been widely recognised as a major policy success, significantly increasing participation in workplace pension saving. The National Employment Savings Trust—Nest—has been central to that achievement and will continue to play a key role in supporting the system. Nest now serves nearly 14 million members, around one-third of the working-age population, providing a low-cost, accessible pension scheme for employers and workers across the UK.

Subject to parliamentary approval, this instrument will amend the Nest order 2010, which provides the legislative framework under which Nest operates. The instrument will enable Nest to extend its suite of retirement options to include flexi-access drawdown, a retirement income option that allows individuals with a defined contribution, or DC, pension to withdraw any amount from their pension pot while keeping the remaining funds invested. The instrument will also enable Nest to offer a scheme pension—an income payable to a member either directly by the scheme administrator or through an insurance company appointed by the administrator. This provision allows Nest the flexibility to offer the same range of benefits which can be provided by other comparable pension schemes.

In addition, the instrument will provide Nest with the authority, in the event of a member’s death, to enable the trustee to offer either a dependants’ scheme pension or a drawdown pension to eligible individuals including dependants, nominees or successors. This provision will ensure flexibility in benefit options after death and again aligns Nest with broader industry practice and capabilities.

Overall, this amendment will allow Nest to expand the retirement offer for its members, aligning it to the same range of benefits that other pensions schemes can offer and supporting it to comply with the guided retirement requirements recently debated during the passage of the Pension Schemes Bill.

We know that retirement today is not a linear experience and that circumstances change over retirement. Life events—including decisions to work part-time, health conditions and bereavement—all factor in and have an impact on household incomes. Gathering insight and feedback from members is crucial to designing well-structured and flexible pension plans. These changes reflect the needs and preferences of Nest members. This instrument will support the important role Nest plays in the pensions market by enabling it to provide appropriate retirement solutions for Nest members.

Automatic enrolment has encouraged more people to save for their retirement and has made saving normal for most people in work. But getting people saving is just the start and, as we know, people need support when they come to use their savings to provide an income in retirement. Currently, Nest members can use their pension savings to buy an annuity, make use of the uncrystallised funds pensions lump sum facility, take the savings as cash or transfer out to another scheme. However, since Nest’s inception, retirement options have expanded across the pensions market, particularly following the introduction of the pension freedoms in 2015. These flexibilities are not fully available to Nest, which remains constrained by the terms of its original order.

As noble Lords will know, the Pension Schemes Bill contains specific measures around guided retirement. A consultation document, Helping Savers Understand Their Pension Choices: Supporting Individuals at the Point of Access, was published in July 2023 under the previous Government. This asked a specific question about whether Nest should provide default pensions to its members. There was broad support from the 46 industry and member groups that responded, recognising Nest’s unique role and the importance of ensuring fair treatment in line with other schemes, while being clear that Nest should not gain any commercial advantage.

Since that consultation, the Government have continued to engage extensively with Nest and the pensions industry to ensure that that principle of fairness, both to Nest members and to the wider market, has been upheld. Industry players have been active in developing solutions ahead of the guided retirement requirements. For example, in June 2022, the PLSA, now Pensions UK, published Retirement Choices: the Evolution of Products and Support, which set out its framework to support complex decision-making.

Without this change, Nest, the largest master trust, will not be able to offer flexi-access drawdown, nor will it be able to meet fully the expectations of guided retirement—to provide savers with the option of a simple, dependable default income in later life—and Nest savers would therefore miss out on a secure default pension option. With cost of living pressures rising, I am sure the Committee can agree that having a dependable retirement choice is more important than ever. I commend this statutory instrument to the Committee.

[Lord Davies of Brixton (Lab)]

I welcome the Government’s decision to bring in this draft order. As my noble friend the Minister has made clear, it builds on the clear success of automatic enrolment and Nest as the public service vehicle for automatic enrolment contributions. It is a crucial element in achieving the Government’s aim, set out in the pensions road map, of ensuring that people get as much out of their savings as possible. In other words, structure is as important as adequacy. Enabling Nest to offer flexi-access drawdown and a scheme pension to its members is an important step, and it brings Nest in line with what other occupational defined contribution schemes have been able to offer.

I want to explore what the order does not necessarily make clear and ask the Minister whether the Government have considered whether more might be done. I will focus on the potential role for Nest in providing collective defined contribution pension schemes. Put simply, as noble Lords know, CDC arrangements pool the risks involved in providing pensions rather than leaving each individual to manage that risk alone. The issue I wish to raise is whether Nest, under the powers conferred by this order, would be legally enabled to offer CDC-type benefits as part of its retirement income proposition.

The order amends Article 32 of the National Employment Savings Trust Order 2010, so that in addition to lump sums and lifetime annuities, the trustee may pay drawdown pensions and scheme pensions. The term “Scheme pension” is defined by reference to paragraph 2 of Schedule 28 to the Finance Act 2004. That definition is broad. It encompasses a pension payable by the scheme administrator directly, without the interposition of an insurance company. That is significant. A CDC scheme under which the trustee pays a pension directly to members from a pooled fund, applying mortality credits as members of the pool die and their share is redistributed to survivors, would appear to fall within the concept of a scheme pension as defined in the regulations and the Act. I ask the Minister to confirm that interpretation.

This is not a fanciful proposition; Nest contemplated precisely such an arrangement in its 2015 blueprint document, The Future of Retirement. That document set out a three-phase retirement income strategy. The third phase, for members aged 85 and beyond, was to be funded through what the document called a

“later life protected income building block”.

Crucially, the document explicitly considered the operation of this building block through a collective uninsured mortality pool—members pooling their longevity risk with the trustee distributing income proportional to the premiums paid in, supported by mortality credits as the cohort reduces. This is, in effect, a collective defined contribution scheme for decumulation. In other words, Nest was ahead of the curve in 2015. The question is whether this order now places the legal architecture beneath those ambitions.

Concurrent with these regulations, Nest is undertaking a consultation of the changes to its rules it will be able to make in line with the order. That consultation focuses principally on the mechanics of flexi-access drawdown, the drawdown account and the relationship between the pension account and drawdown account, the transfer provisions and the death benefit arrangements. That is all necessary and commendable work, but the consultation is candid on the fact that there are no immediate plans to offer a scheme pension. The relevant rule amendment provides only that

“if and to the extent that the Trustee determines to provide the option”,

a scheme pension may be made available.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, the Opposition broadly welcome this order. I thank the Minister for her clear outlining of the measures and the detail that she put forward.

This seems a straightforward and genuinely important modernisation of Nest; we are glad to see it being brought forward. Allowing Nest members to access drawdown pensions and scheme pensions—as well as extending broader and more flexible death benefit options to their dependants, nominees and successors—has to be a good thing. However, it also marks a significant shift in responsibility from the system to the individual, which makes the questions of guidance and support all the more important.

At the heart of this change is a principle that we support: people should have genuine control over how they access and use their own money. The pension freedoms introduced in 2015 were built on exactly that principle. Members should not be forced into products that do not suit their circumstances. They should be able to keep their funds invested, draw income at a pace that works for them and pass on what remains to those whom they love. Nest members deserve no less than that, so this order rightly brings them into line with the wider market—so far, so good. However, regardless of that, we have some questions for the Minister; she has touched on some of them.

It is clear to me that greater choice is genuinely valuable only if people are equipped to exercise it wisely. Drawdown is more complex as a product than annuity. It requires members to make judgments on investment risk, longevity and income sustainability—judgments that are not straightforward and which have real, lasting consequences if they go wrong. The introduction of these options for Nest members brings with it, therefore, a serious obligation on the part of the Government.

First, on financial education and support, Nest serves a membership that is, by design, composed largely of lower and moderate earners—people who were auto-enrolled, often for the first time, and who may have had little prior engagement with pension saving. These, in the main, are not members who have financial advisers; the Minister will know that, of course. They are precisely the people for whom the difference between a well-informed and a poorly informed decision at retirement is the most consequential. The Minister covered a number of my queries in her opening remarks, but can she tell us what specific steps the Government are taking to ensure that Nest members are properly supported in understanding these new options? That is more a question of communication. What guidance will Nest itself be required to provide? How will Pension Wise and MoneyHelper be resourced and promoted to reach this membership? What assessment have the Government made of the adequacy of the current financial guidance provision for those who are approaching retirement through auto-enrolment schemes?

Secondly, I know that the Minister spent some time on dependants in her opening remarks, but I want to say this: although the extension of drawdown and flexible death benefit options to dependants, nominees and successors is welcome, it creates its own complexities. A surviving spouse or dependant who suddenly becomes responsible for managing an inherited drawdown pot is in a very different position to someone who has spent years building up their own retirement savings. They may be grieving; they may have little or no experience of investment decisions. Can the Minister give some further information on what support will be available to those who inherit benefits under Nest in these circumstances? What obligations will Nest have to contact, inform and guide beneficiaries at the point when they come into an inherited pension? As the Minister will know, this is not a small matter; for many families, this will represent one of the most significant financial decisions that they have ever had to make.

Thirdly—I make no apology for raising this—this order does not exist in isolation. It has been made against the backdrop of the Pension Schemes Bill currently before the House and the two must therefore be read together. The principle that runs through this order is one of member choice and autonomy. People should be able to access their money in the way that best suits them. We agree with that principle unreservedly, but it is directly and fundamentally in conflict with the mandation provisions that the Government are seeking to introduce in the Pension Schemes Bill. We have made this point in Committee and on Report, and we make it again today.

You cannot, on one hand, expand member choice through instruments such as this and, on the other hand, propose to compel members through mandation into investment in particular outcomes or products not of their own choosing. The two positions are inconsistent. If the Government genuinely believe, as this order suggests, that members should be empowered to make decisions about their own retirement savings, they must abandon the mandation provisions in the Pension Schemes Bill. We will continue to press that case.

I close by raising a point that was highlighted by the Secondary Legislation Scrutiny Committee in respect of this order, which is that a call for evidence was announced in 2022 around these measures. However, they have only just been laid before Parliament. Can the Minister please confirm that she is confident that the evidence submitted is still relevant to the instrument that we are discussing today? Has any additional evidence been sought on this particular question since?

It is right that Nest members have the same freedoms that others in the market have long enjoyed. We are glad to see that that parity is being extended. However, the value of that freedom depends entirely on the quality of support and guidance that surrounds it and on the Government applying the same principle of member autonomy consistently across their wider pensions policy.

We look forward to the Minister’s response on all the points that I have raised. I have also noted all the points that the noble Lord, Lord Davies, raised on CDCs, which were interesting. We will be watching the progress of the Pension Schemes Bill with close attention, with Commons consideration of Lords amendments on Wednesday; I know that the noble Baroness herself will be doing the same.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for their questions and I will try to answer most of them if I can. I will respond first to my noble friend Lord Davies and thank him for his support for this order and its aims. In relation to CDC, this order is obviously focused on certain benefits that Nest will be able to offer; principally, that is flexi-access drawdown. However, the Government are exploring how retirement CDC schemes could broaden options available to trustees and managers of pension schemes when developing default pension plans. It would be the responsibility of Nest trustees, like other schemes, to consider the needs of their members and to provide appropriate default plans. For Nest to offer CDC, the scheme would of course need to meet the relevant authorisation.

More broadly, we have been clear that CDC or retirement CDC could be used by schemes to meet their guided retirement duties but, again, it would be for the scheme trustees to consider the needs of their membership to determine appropriate retirement solutions, including the option of CDC. I may come back to my noble friend if anything else occurs to me.

The noble Viscount, Lord Younger, asked an important question about the particular composition of the Nest saver population. Many of these are low-income savers who would not otherwise have previously been involved in saving. Of course, one great advantage of these changes is that Nest is able to offer a wider range of choice and, crucially, through that, to meet its requirements under guided retirement. As he knows from our debates on the Pension Schemes Bill, guided retirement is the means by which the Government can make sure that schemes offer a default option to people, without them having to make complex decisions, which has an income element into retirement. That is the greatest source of the protection there.

It is also a protection against people simply making the choice to take cash, which may not be the right thing for them to do. Nest set out its blueprint about what its default option would look like, which was in different sections. There were the options of different pots: a drawdown pot, a cash pot and an income in later life. That is therefore the direction in which one would expect them to move. I do not think that there is anything else I can say at this stage, but I will go through Hansard and, if there is anything specific that I have not responded to, I would be very happy to do so.

The amendment that this instrument makes to the Nest order is crucial to the Government’s wider ambition to strengthen and modernise the pensions system, making it simpler and more attuned to the needs of today’s workforce. Obviously, I completely reject the case made by the noble Viscount, Lord Younger, that anything the Government are doing here contradicts anything in the Pension Schemes Bill, but since we have had many conversations about that subject and many more joyfully beckon to us, I may leave that for another day if he will permit me to do so.

Before I wind up entirely, another thought occurs to me. I was asked whether the Government have engaged with Nest. The Government hold regular meetings with Nest in relation to guided retirement and CDC provision. As with other workplace trust-based schemes, in terms of offering CDC it would be for the trustees to determine suitable retirement options for members, consistent with guided retirement. As I said, the Government are exploring how retirement CDC schemes can broaden the options available to trustees. If I have anything further on the timing of the regulations that would be needed in that direction for deaccumulation-only CDC schemes, I will come back to my noble friend.

By delivering this instrument, the Government are ensuring that 14 million people, many of them lower-income workers, can access an enhanced range of products to support them in retirement, giving them greater confidence and a clearer pathway towards financial security in later life. I commend this instrument to the Committee and I beg to move.

Motion agreed.