The Pensions Commission's proposals to reform Britain's pensions system published yesterday could cost the financial services industry 50,000 jobs and British business as a whole some $4 billion a year.
According to consultants Deloitte, the proposed state-administered National Pension Savings Scheme (NPSS), the central plank of Lord Turner's proposals, would eliminate or substantially reduce the role for pension providers, leading to "a seismic shift in the structure of the pensions market".
"The impact on the life and pensions industry and employers and the ability of a public body to administer this effectively need to be carefully considered before final decisions are made," said John Connolly, Deloitte's UK Chief Executive.
Mark FitzPatrick, head of the Insurance Practice at Deloitte, warned that the life and pensions industry would expect to lose up to 30 per cent of its revenue, putting up to 50,000 jobs at risk– double the number of financial services jobs which have gone through offshoring.
"A more effective model, like that used in Australia, would be to administer the system through the life and pensions industry," he said.
"This group have the existing expertise and infrastructure in place to effectively administer the programme which would enable the government to introduce the National Pension Savings Scheme much more quickly."
Stephen Haddrill, director-general of the Association of British Insurers, agreed, saying that Britain did not need "a new, expensive and risky state quango".
Deloitte also warned that the NPSS would cost employers £4 billion per annum, with costs for the FTSE 100 alone an average of £10 million per company per annum.
For the very largest companies, extra contributions could amount to as much as £50 million per company per annum.
In the retail and leisure industries, where organisations have large numbers of low paid employees who not currently participating in an occupational pension, labour costs would increase by far more than the 0.6 per cent average increase quoted by Turner, Deloitte calculated.
To stay competitive, employers will need to look for ways to absorb or mitigate this additional cost, leading to wage cuts or job losses.
"These additional costs come at a bad time for employers who are facing two pension crises, not one," said Deloitte's David Robbins.
"They are already meeting the cost of plugging the holes in their own pension schemes, and now face the additional cost of compulsory contributions to all employees' personal accounts.
"I expect that the additional cost burden will have a profound effect on the way in which UK plc remunerates its employees. For example, future salary increases may be restrained in order to allow for the extra pension costs."
"Based on the Australian experience, we might expect some UK companies to consider closing their occupational pension schemes in favour of contributing to personal accounts," he predicted
"A 3 per cent contribution is a lot lower than the level typically paid by an employer into a good company pension scheme. The proposals may therefore act to reduce the amount of pension savings for some groups of employees."