The European Commission has approved a government loan to cover the set-up costs for the National Employment Savings Trust.
The government will hand out the loan at a commercial interest rate. However, NEST will only have to pay the interest corresponding to the government's cost of borrowing.
Under the EU state aid rules, this difference is considered to be a soft loan and to constitute state aid. The amount of aid, depending on the number of members, will be in the range of £200-379m.
The Commission concluded the aid would not overcompensate NEST for providing the public service and was therefore compatible with EU state aid rules.
Commission vice president in charge of competition policy Joaquín Almunia said: "Public services play a key role in Europe's model of society. The new occupational pension scheme will enhance the UK pension system, thereby making sure people, and their employers, provide adequately for old age, without unduly distorting competition in the marketplace."
In particular, NEST needed to meet three criteria of the 2005 framework for state aid as compensation for a service of general economic interest (SGEI).
The Commission found:
- NEST carries out a service of general economic interest;
- it is entrusted by an official act that details all the elements of the service;
- there is no overcompensation for the provision of the service.
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