Small businesses will struggle to enrol employees into a pension scheme unless restrictions on the Government's default National Employment Savings Trust (Nest) pension scheme are lifted, the Federation of Small Businesses in Scotland has said.

Automatic enrolment is barely a year away for Scottish firms with fewer than 250 staff, and early signs from the biggest firms are that only 10% of employees are opting out.

The FSB joins the MPs' work and pensions committee, consumer groups, the National Association of Pension Funds, and even some insurers, in calling for a review of Nest, which has a Government subsidy and is the default provider for automatic enrolment into a pension.

However, at present employees who want to contribute more than £4400 a year or to transfer in a previous pension cannot do so, which means many employers cannot choose Nest as a single scheme for their workforce. Hopes that the Chancellor would lift the restrictions last week were disappointed.

Colin Borland at the FSB said: "The contributions cap means that if you do have workers employed above a certain level you are going to have to run two schemes which sort of defeats the purpose – the idea was supposed to be a low-cost low-hassle default scheme to gather everyone up."

The ban on transfers would create similar problems, he said.

Tim Jones, Nest chief executive, said: "Nest's restrictions complicate the decision-making process of medium-sized employers, many of whom will experience a private pensions sector already busy supporting other clients."

Lawrence Churchill, chair of Nest, said: "Our experience to date suggests the restrictions already impact negatively both on employers and members, by restricting choice and preventing members from growing their pots as they might wish to."

Nest has to repay a £171 million Government loan by levying a 1.8% charge on contributions, on top of a 0.3% annual management charge, and Mr Borland said freeing it up would enable earlier repayment of the loan, benefiting scheme members. He said Nest had been set up to serve a market that was "unattractive to the pensions industry".

However, two of the big Scottish insurers are fighting what could be a rearguard action to prevent the restrictions being lifted. Adrian Grace, chief executive of Aegon UK, said: "The restrictions are in place for a very good reason: to protect people from ending up in a scheme that does not meet their retirement objectives.

"Nest's default fund was designed based on the risk-averse profile of its target market, who were found to be more concerned about losing the value of their pension contributions than potential growth. Its design also assumes the majority of members will take an annuity at retirement. This simply isn't the case for a growing portion of the pensions market."

Ewan Smith, managing director of Scottish Life, said: "We think it's reason-able the constraints put on them ensure they continue to be focused on their target market."

However, Aviva said the restrictions added "un-necessary complexity to employer's auto-enrolment decisions".

A source at Nest, which has been lobbying in Scotland, said: "The way we are set up is highly sophisticated, low charge, and balancing risk very carefully – we are not [just] a low-risk product."