Labour is set to publish a white paper on pensions reform this week and one option is the NPSS, proposed by Lord Turner’s pensions commission last year.

Workers would be enrolled automatically, with the right to opt out, and firms would have to make compulsory contributions.

However, our pensions panel was concerned that the NPSS could hasten the demise of final-salary plans and encourage companies with money-purchase schemes to downgrade their contributions.

Under Turner’s plan, workers would pay in 4% of net earnings and employers would be required to top this up with a further 3%.

The government is expected to soften the blow to employers by sparing small firms with up to five employees. Firms with up to 50 staff could pay just 1.5%.

Even so, our panel said companies offering more generous benefits now would see this as an excuse to slash their contributions.

John Lawson of Standard Life said: “If all employers cut back their contributions to the NPSS level of just 3%, workers will be £14 billion to £15 billion worse off in retirement. It is also likely that firms will use the NPSS as justification for closing their final-salary plans.”

Others in the industry agree there is a danger that company schemes will be degraded. John Wilson at HSBC said: “Under the plans, there are no incentives for the firms to maintain contributions at more than 3%. In fact, it could be said there is more reason for them to go the other way.”

Critics also believe smaller firms will encourage staff to opt out because of the costs involved, despite the government’s concessions.

Steve Bee of Scottish Life said: “Someone running a chip shop with six employees is not going to want this extra cost, which could put them out of business. I think businesses of that sort are likely to tell staff that they won’t keep them on unless they opt out of the scheme.”

Supporters argue that final-salary plans were already doomed and that the NPSS will at least mean fewer people are left with no retirement savings.

Mona Patel of the Investment Management Association said: “Many final-salary schemes are already closed to new entrants. Whatever the eventual shape of the NPSS, the transition from final-salary to defined-contribution schemes is likely to continue.”

But our panel also voiced concerns that the proposed management charges of 0.3% are not high enough. Lawson said: “Pension providers only start making a profit when charges hit a rate of 0.6%. The proposed level of charges would therefore have to be at least doubled for the scheme to be run profitably.”

The government is expected to shy away from precise details of the NPSS in the white paper next week until such issues are ironed out. Observers predict it will announce details of big changes to the state pension, however. It is thought to be planning to restore the link between the basic state pension and earnings — probably from 2012.

In return, the state retirement age is likely to go up in stages from 2030, reaching 68 by 2050. Women who have taken time off work to care for their families are also expected to get a better deal.

The round table hailed the measures as a “small step in the right direction” because they will reduce the spread of means-testing.

Adrian Boulding of Legal & General said: “About 50% of people are means-tested today, and that would have risen to 70% by 2050 had things stayed as they are now. However, under the new scheme, 44% of people will be affected by means testing in 44 years’ time.”

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