Compulsory workplace pension schemes must be overhauled by the next government or millions of private sector workers will be put off saving because of high and complicated yearly charges, the CBI has warned.
The next government should rethink its annual charge on employees who join the National Employment Savings Trust (Nest), the new company pension scheme designed to secure wider uptake of pensions among 11.7 million private sector workers.
The scheme, due to come into effect from 2012, will cover staff whose employers do not have a pension plan.
It will initially charge members 2% of their contribution when they pay money into it, to cover the set-up costs. But there is also a 0.3% annual management charge.
The CBI claims that for the first 16 years after a pension opens, savers in a private sector scheme running with a slightly higher annual charge and paying £1,000 annual contributions will be better off.
Those in their 40s and 50s will be hit the hardest, as they will only save for a few years in Nest, according to John Cridland, CBI deputy director-general.
He said: "[Nest] is meant to be low-cost and easy to understand, so that it spurs people to start saving. But the risk is that many staff will think they are getting a raw deal, and will quit the Nest scheme.
"The next government needs to revisit the structure of these fees. We must make it easier for the low-paid to save by smoothing the cost, instead of front-loading it. The pensions time-bomb is ticking loudly, and more people must be encouraged to save."
Cridland stressed that Nest was a "cheaper option over longer time-frames", but employees were unlikely to recognise the long-term benefits. They may also be unprepared or unable to save for long enough, or unwilling to trust that the scheme will stay in place for two decades, he said.