Lord Turner's long-awaited report into the pensions industry, published tomorrow, is set to receive a frosty reception from the savings industry over concerns that one of its main recommendations will act as an incentive for thousands of companies to reduce employee pension contributions.
The report will recommend the creation of a state-administered workplace pension scheme, compelling employers to contribute at least 3 per cent to all employees' pensions unless the individual opts out. Staff will be automatically enrolled as soon as they join the company, and will have 4 per cent of their salary put into the scheme.
But the savings industry believes the plan - tagged "Britsaver" - will encourage many employers to reduce contributions to the minimum 3 per cent, because of the extra expense of having a much larger participation in their company schemes.
Stewart Ritchie, a director of Scottish Equitable, the life assurer, said there was a danger smaller- and medium-sized companies would try to do deals with staff to persuade them to leave the pensions scheme.
"We say there should be targeted incentives for small- and medium-sized employers to participate in this because if there isn't, there's a serious risk that employers will find ways around it," Mr Ritchie said. "And then as the Government legislates to plug the loopholes, you end up with more and more legislation and red tape."
Mr Ritchie added that plans to allow the Government to run the scheme centrally could lead to a repeat of the administrative shambles which surrounded the introduction of tax credits a few years ago. Since the launch of the government system, hundreds of thousands of people have been paid in error and forced to return the money, or underpaid.
Jon French, a spokesman for the Association of British Insurers (ABI), the savings industry's main trade body, said: "The important thing to remember is that there's already apparatus in place for administering and managing funds - and our member companies have that apparatus. So if a [Britsaver] scheme was set up, we would want to play a major part in it."
Mr Ritchie said a move to administer the scheme centrally would not generate the cost-savings the Government would hope for. "If you compare like for like, the costs of the private sector are fairly competitive with anything the Government could bring in using a clean sheet of paper and a state-run system.
"Let's put the focus on providing cheap and efficient workplace collection, and let's use inertia, in the form of auto-enrolment, to help that along. But let's not assume the state can do it better than the private sector."
The scheme is known as Britsaver because it is based on the New Zealand pensions model, the Kiwisaver. But the ABI said it was concerned about the idea of "importing" a pensions system. "We've looked at a number of different schemes, and there are good and bad elements to each of them," Mr French said. "I don't think it would be advisable to take one scheme, wholesale, and implement it in Britain."
The savings industry remains wary as to how the Government would arrange for funds in the Britsaver to be managed. Charles Beazley, the head of institutional business at Gartmore, said he fears any default investment option would be too low-risk to produce any meaningful returns over the longer term. "You can't create wealth ... sufficiently using bonds over a long period of time."
But Ros Altmann, a government pensions adviser, said her main concern was as long as the current pensions credit system is in place, there is a large proportion of the population for whom it is not worth saving for a pension, as their benefits will be penalised.