The trustees of the National Employment Savings Trust should take legal action against the government's decision not to remove contribution limits to the vehicle, shadow pensions minister Gregg McClymont has said.
Contributions to NEST are subject to a limit of £4,400 per year. Despite pressure from the industry and from the Department for Work and Pensions select committee to remove the limit, the government has refused to consider doing so until 2017.
McClymont (pictured) said the trustees of NEST should challenge the government's stance on the limits, claiming the restrictions could damage savers' investments.
"There are strong grounds for the independent trustees of NEST obtaining their own legal advice," said the MP.
"The restrictions on NEST reduce the economies of scale it can achieve. This raises the cost of the administration of pensions to all existing members."
McClymont said the government is debating whether lifting the NEST restriction would contravene competition laws set by the European Commission, but argued that it is now clear these rules do not apply to NEST.
The EC's state aid rules aim to ensure that the interventions of national governments do not distort trade and competition within the European Union.
Specifically, limits must be set on an undertaking paid for by the government if it fails to pass a selection of tests.
Labour said that when NEST was being set up, it could not be established whether NEST passed these tests as the vehicle was not operational at the time.
McClymont said it is clear NEST now passes those tests, which include having clearly defined public service obligations.
"EU state aid rules no longer apply to NEST. The government can and should remove the restrictions," McClymont said.
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected