Unless the UK government lifts the cap on contributions into its new low-cost pensions scheme it could fail to address the issues the scheme was designed to resolve, a government report published on Thursday said.

The government is due to phase in auto-enrolment in October, under which employers will sign up staff to their corporate pension schemes unless they ask to be excluded. This could lead to up to 8 million additional workers being signed up for pensions.

The scheme, to be administered by a specially created body called the National Employment Savings Trust (NEST), can only accept contributions of 4,200 pounds ($6,600) a year.

However, if employees want to make more than the minimum 8 percent contribution, an individual earning more than 53,000 pounds would effectively be excluded from the scheme after hitting the 4,200 limit.

The restrictions make it impossible for NEST to meet the needs of all the employers and employees who might want to use it, Dame Anne Begg, MP and chairwoman of the Work and Pensions Committee, said in a statement.

Unless the restrictions are removed, many employers will still not be able to access its low-cost pension scheme, and many of the employees for whom it was intended will not be reached.

The report recommends that these restrictions should be lifted as a matter of urgency and urges a rethink on the ban on individuals transferring existing pension pots into NEST.

Some 2.4 million people in Britain have combined personal and stakeholder pension pots of less than 5,000 pounds and 4 million have less than 10,000, government figures show.

Less than half of employees are saving into a workplace pension scheme, the lowest proportion since records began in 1997, official figures from the Office for National Statistics (ONS) showed in February.

The National Association of Pension Funds (NAPF), which represents 1,200 pension schemes in the UK with 15 million members and assets of around 800 billion pounds, said growing doubts about the value of saving into a pension could see more employees opting out of the scheme.

($1 = 0.6355 British pounds)

(Editing by David Holmes)