Limits on the state-backed pension NEST are set to be lifted in 2017, allowing the scheme to better compete with other UK providers.
NEST must accept all business and is currently operating with 9,000 employers. Restrictions were originally in place to limit its competitive advantage, as NEST is a not-for-profit provider benefitting from state subsidies.
Since its launch in 2012, over 1.5m workers have been automatically enrolled onto the scheme. However, the current limits mean contributors save a maximum of only £4,600 a year.
Now the government has said the restrictions will be lifted, setting the date as October 2017.
Fighting off the restrictions
The uncapping comes after EU officials confirmed that an unrestricted NEST, which is already looking after £212m of savings, would not break the laws on state aid.
The shadow pensions minister, Gregg McClymont has said of the government that it believed removing restrictions would breach the EU law. "So we published detailed legal advice to show that it was entirely possible," he said.
In a statement, the pensions minister, Steve Webb said:
"Nest was set up to support automatic enrolment . . . it was designed to provide a quality, low-cost pension scheme focused on a target market of low to moderate earners and smaller employers.
"I am pleased to announce the government intends to remove the annual contribution limit and transfer restrictions on Nest."
Mr McClymont expressed his pleasure that the changes are being made and said he would also pursue an amendment to have the restrictions lifted immediately.
However, pensions experts say that the move is too late.
Speaking to the Financial Times, independent pensions expert Ros Altmann said:
"The limits should have been removed a long time ago… By 2017, most employers would have chosen a workplace pension provider for their automatically enrolled staff and are unlikely to change."
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