Restrictions on state-backed NEST pension scheme to be removed in 2017

Steve Webb said that last year's call for evidence had revealed "a perception" that the £4,500 a year cap on annual contributions and ban on transfers into or out of the scheme was "stopping NEST serving its target market".

However, Webb said that it was clear from the number of workers signing up to NEST that the scheme had been successful. For this reason, no changes would be made until the Government's automatic enrolment programme is rolled out to all participating employers, to ensure that the scheme continued to target low to moderate earners, he said.

"With over 250,000 members already, it is clear that NEST is a success," he said. "Targeting low to moderate earners that the market has traditionally forgotten, NEST has innovated with its use of language and investment strategy and has ensured that everyone has access to quality pension provision."

"That is why I am not making any changes until 2017, when automatic enrolment is fully rolled-out. At this point I will lift the contribution limit so that NEST remains a force for good in the marketplace, driving up standards and best practice," he said.

The restriction on bulk transfers would also remain until this date, so that NEST could "focus" on getting employees of smaller businesses into pension saving, he said. However, restrictions on individual transfers would end in time to allow NEST to participate in the new 'pot follows member' regime, under which savers will be able to automatically take small pension pots with them when they change job.

NEST was designed to be a low-cost, trust-based occupational pension scheme for people who were largely new to pension saving as a result of automatic enrolment. It has a public service obligation to ensure that everyone eligible for automatic enrolment can access a low-cost pension and has a particular focus on savers not well served by the existing market such as low to moderate earners, those with smaller employers and firms with a high turnover of staff. The scheme is due to be reviewed in 2017.

The largest employers began automatically enrolling their workers into NEST, or into their own occupational schemes which meet minimum requirements, in October 2012. Smaller employers are set to follow in a staggered implementation programme, running until April 2017. Once the process begins, employers will be required to automatically enrol 'eligible jobholders' aged between 22 and the state pension age who are earning more than £7,475 a year.

Other constraints placed on NEST to ensure that it continued to meet the needs of lower earners and smaller employers will not be lifted. The scheme will continue to accept everyone automatically enrolled into it, even if their income does not cover the cost of their account, and will continue to offer good value with no differential pricing. In addition, NEST is prohibited from offering other products as a way of boosting margins, such as life insurance.

Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that dropping the restrictions was "sensible".

"When NEST was originally set up, other pension providers feared it would corner a large share of the auto-enrolment market," he said. "It had the advantage of being branded the Government-approved scheme, and benefited from a Government loan. To pre-empt the pension providers' fears, restrictions were imposed on NEST."

"But those fears have not been realised. Rather, many commentators worry that pension providers will not have the capacity to cope with the flood of new pension savers. Dropping the restrictions is sensible. Private pension providers will be appeased by NEST's intention to continue to focus on its target market only: smaller firms and low to moderate earners," he said.