UK – Restrictions placed on the National Employment Savings Trust (NEST) are to be lifted by the UK government in 2017, the Department for Work & Pensions (DWP) has confirmed.

Lifting the restrictions placed on NEST by the previous Labour government has long been a demand of the work and pensions select committee, as well as a number of employee and consumer groups.

Releasing its response to last year's consultation on the restrictions – which see the fund unable to receive or allow the transfer of pension savings, and imposes a cap on the annual level of contributions – the department acknowledged concerns over the "widespread" belief that NEST could not be used as the single pension solution for many employees.

However, the DWP seemingly ruled out lifting the restrictions ahead of 2017 as a means of addressing industry concerns.

It said: "To lift the restrictions as a result of a perception would not be a proportionate response and could divert NEST's attention to parts of the market that it is not specifically designed for, leaving it with less capacity to supply pension provision for its target market."

It added that the best solution to the perceived problems would be for employer groups and the pensions industry to communicate clearly that the restrictions would be lifted in five years – with the exception of the transfer of individual pension pots, which would be possible once the department's 'pot follows member' initiative got underway.

Pensions minister Steve Webb said it was important for NEST to retain its "special focus" on its target market of low earners unfamiliar with pension saving.

"Therefore, to make sure we achieve our aim of getting people saving, we have decided NEST must continue to focus on its target group without any distractions," he said.

However, he pledged to legislate "as soon as parliamentary time [allowed]" to lift the restrictions in time for 2017.

Shadow pensions minister Gregg McClymont argued that the announcement amounted to the government caving in to special interest groups.

Representatives of the insurance industry, such as Legal & General's pensions strategy director Adrian Boulding, previously argued that removing the restrictions ahead of time would "endanger the whole auto-enrolment programme".

"Last year, the government blamed Brussels for not being able to lift the restrictions on NEST," said McClymont in a reference to a previous DWP note that said it "would not be lawful" to lift the restrictions.

"This year," he said, "they say they can lift the restrictions after all. But not until 2017 and after the majority of people have already been auto-enrolled. The government has failed savers and pandered to special interests instead."

NEST head of product operations Helen Dean meanwhile said it welcomed the "certainty" the announcement offered its members and employers, as the restrictions would be lifted prior to the legal minimum auto-enrolment contribution rose to 5%.

The National Association of Pension Fund's chief executive Joanne Segars was also positive about the new certainty.

"There might have been a case for lifting these barriers earlier," she said, "but doing so from 2017 provides the clarity and certainty that employers, savers and the pensions market all need."