The Government has rejected calls from the work and pensions select committee to scrap the restrictions on Nest ahead of the 2017 review.
In March, MPs published a report calling for Nest’s contribution cap and the ban on transfers in and out of the Government backed scheme to be removed “as a matter of urgency” so it can compete more widely.
Under current plans, annual contributions into Nest will be capped at £4,200 and transfers in and out of the vehicle will be banned.
In its response to the committee’s report, the Government says: “Nest is an impressive product and it is important that employers consider fully whether it is an appropriate scheme for their workers.
“If there are barriers, or perceived barriers, to employers choosing Nest, where it is appropriate for them to do so, the Government needs to consider carefully what can be done to remove them.
“However, the evidence that the Nest restrictions are acting as a barrier is not unequivocal and the Government is conscious that the restrictions were designed to ensure that Nest’s focus remained on its target market.
“In particular, the committee is right to raise the issue of state aid. It would not be lawful for the Government to remove the restrictions simply to increase take up of Nest – there would need to be evidence that such action is required to address market failure.”
Aegon regulatory strategy manager Kate Smith says: “We think this is the right decision by the Government. There is no evidence that Nest’s barriers need to be removed at the moment and much of the market has already joined up with Nest.
“So from an employer and customer perspective there is no problem.”
Labour Shadow pensions secretary Gregg McClymont says: “I am disappointed at how long the government is taking to review the issue. My view is that an objective review will find that there is scope to lift the restrictions.”
A DWP spokewoman says the Government is still considering the report’s recommendations.