LONDON (Reuters) — Restrictions on a government-backed pension plan aimed at helping more Britons save for their retirement should be lifted as a matter of urgency, a parliamentary committee said in a report.
The Work and Pensions Committee said removing the limitations on the National Employment Savings Trust (NEST), which cap the amount an employee can contribute to their pension pot each year and ban transferring existing pensions in and out of the scheme, should not be delayed until 2017.
The government is trying to cut a soaring pensions bill that is set to reach 120 billion pounds ($189 billion) in 20 years. It wants people to pay into their own pension pots rather than rely on the state.
The changes would allow people to save more for their retirement rather than having the amount they can pay into their pension capped by NEST. They would also be able to consolidate their separate pension pots into one place if they move jobs.
The Work and Pensions Committee has called for the changes after the take-up of NEST by Britain's largest employers was lower than expected because of the restrictions.
NEST is funded by the taxpayer and was set up through the Pensions Act 2008 to tie in with a government auto-enrolment scheme as a low-cost option for employers to enroll their staff on low to moderate earnings.
Auto-enrolment was introduced in October last year and is expected to get as many as nine million more people saving into a workplace pension scheme for the first time. The scheme automatically enrols staff who are at least 22 years old into a NEST, but gives them a choice to opt out.
"The case for lifting the restrictions on NEST has become even more powerful since implementation of auto-enrolment began," the Work and Pensions Committee said in the report.
There is currently an annual 4,400-pound ($6,940) cap on contributions into a NEST pension.
Figures from the Department for Work and Pensions showed an individual would need to earn more than about 60,000 pounds ($95,000) per year to exceed the annual contribution limit and this would only affect six per cent of private-sector employees, the report said.
But the Work and Pensions Committee said the cap would "prevent employers from offering a single workplace pension scheme to all their employees".
Meanwhile, the ban on transferring individual retirement savings will create 50 million dormant workplace pension pots by 2050 and over 12 million of these would be under 2,000 pounds, the report said.
"We believed that the restrictions were likely to reduce the effectiveness of NEST in addressing the market failure in the pensions industry that it was designed to resolve," the report said.
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