National Employment Savings Trust restrictions must be urgently lifted to make the scheme more accessible to both employers and workers, MPs have said.
The work and pensions select committee said certain key restrictions placed on NEST - put in place to address pension provider concern about competition - disadvantage employees and make the scheme too complex for employers to administer.
The committee said the annual contribution cap of £4,400 a year should be scrapped and the ban on transfers in and out should be lifted.
Committee chairman Dame Anne Begg said: "NEST was set up to address a market failure in the pensions industry which meant that many employers and employees were unable to access low-cost, good quality pension provision.
"However, the restrictions make it impossible for NEST to meet the needs of all the employers and employees who might want to use it."
She added: "Unless the restrictions are removed, many employers will still not be able to access its low-cost pension scheme, and many of the employees for whom it was intended will not be reached."
The recommended allowing transfers in would fall in line with pensions minster Steve Webb's ‘Operation Big Fat Pension Pot' which aims to make it easier to consolidate small retirement savings into one pot.
Automatic enrolment is due to start in October.
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