• Business leaders criticise government initiative
• 'Nest' scheme will cost too much to attract lower paid

Employers fear a government-sponsored pension scheme covering up to 10 million workers will prove a huge turn-off and be rejected by many of the people it was designed to support.

The CBI warned today the National Employment Savings Trust (Nest) could be declared a flop when it is introduced in 2012 because it is complicated and includes up-front charges that will make it expensive for workers who only join for a short period. Millions of savers could "baulk" at the costs of joining the scheme, leaving only the better paid to benefit from the new occupational scheme when they retire, it said.

The business group supported the idea of encouraging a wider take-up of pensions among millions of workers in private firms, but warned of potential problems over the move to automatically enrol staff.

The scheme could be "undermined" when savers realised that putting money into the trust would leave them worse off for over a decade when compared with saving into other pension schemes.

When ministers agreed the scheme they refused to fund initial management costs for each new joiner to the scheme. The decision to make Nest self-financing forced its board to shift the levy to each employee when they join.

Nest members will initially be charged 2% of their first year's contribution when they pay money into the scheme, which is meant to cover the set-up costs, plus a 0.3% annual management charge.

Nest argued the scheme would remain one of the cheapest UK pension schemes and allowed employers currently without a pension to automatically enrol workers without paying set-up costs themselves.

From 2012 employers will be forced to auto-enrol workers in an existing pension plan or the Nest scheme. The scheme will be rolled out over several years until all employees are covered.

Until recently unions and employers groups supported the scheme in principle along with the three main political parties. However, the decision to charge an up-front fee for joining the scheme has divided opinion. An incoming government will struggle to offer subsidies to offset up-front charges. Proposals to spread the costs over several years would raise the annual charge beyond 0.3%, which could also discourage new joiners.

John Cridland, deputy director general of the CBI, said: "Nest is a key part of extending the offer of a good pension to everyone in the private sector. The scheme 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 timebomb is ticking loudly, and more people must be encouraged to save."

Phillip Inman reaches a wrong-headed conclusion (Avarice: true villain behind global slump, 12 April). In highlighting the discredited and almost criminal policy laxness in the Alan Greenspan "self-correcting" notion of capitalism, Inman correctly identifies the root cause of the financial disaster. He then moves from this position to point the finger at ordinary people across the globe instead. He calls them investors, but those of us, particularly in the public sector, with pensions are not investors in any meaningful sense.

To suggest that by virtue of being a member of my local authority pension scheme I was somehow part of a greedy conspiracy which ended up with the toxic financial derivatives is plainly ludicrous. His suggestion that individual and unsophisticated investors "demanded" risk-free returns of 10% is equally nonsensical. Most individual investors and pension-scheme members invest at one remove from the market, delegating decision-making to experts in a complicated environment. They properly assume that their fund managers will be investing at the best mix of return and risk, operating in a highly regulated market, where the financial authorities ensure probity.

If national financial authorities failed to identify the huge growth of toxic financial products, why on earth is Inman holding individual investors to higher standards? Given that the individual workers Inman used as examples – teachers and car workers – will be the ones who are most cruelly hit while the bankers, fund-managers and the financial regulators escape unscathed, protected and fabulously wealthy, Inman's article is offensive.

John Harding

Glasgow

Phillip Inman reaches a wrong-headed conclusion (Avarice: true villain behind global slump, 12 April). In highlighting the discredited and almost criminal policy laxness in the Alan Greenspan "self-correcting" notion of capitalism, Inman correctly identifies the root cause of the financial disaster. He then moves from this position to point the finger at ordinary people across the globe instead. He calls them investors, but those of us, particularly in the public sector, with pensions are not investors in any meaningful sense.

To suggest that by virtue of being a member of my local authority pension scheme I was somehow part of a greedy conspiracy which ended up with the toxic financial derivatives is plainly ludicrous. His suggestion that individual and unsophisticated investors "demanded" risk-free returns of 10% is equally nonsensical. Most individual investors and pension-scheme members invest at one remove from the market, delegating decision-making to experts in a complicated environment. They properly assume that their fund managers will be investing at the best mix of return and risk, operating in a highly regulated market, where the financial authorities ensure probity.

If national financial authorities failed to identify the huge growth of toxic financial products, why on earth is Inman holding individual investors to higher standards? Given that the individual workers Inman used as examples – teachers and car workers – will be the ones who are most cruelly hit while the bankers, fund-managers and the financial regulators escape unscathed, protected and fabulously wealthy, Inman's article is offensive.

John Harding

Glasgow

Debate about gap between public and private pensions is a sideshow. The real apartheid is between top earners and everyone else

The Confederation of British Industry has stirred the pot on the thorny election issue of public sector pensions, suggesting in a report that funding the retirement of these workers created a "black hole" of £10bn a year and was an unfair burden on taxpayers.

Both main political parties have been giving this debate a wide berth for fear of losing votes from fearful public sector employees, though the Conservatives have made ominous noises in the past.

The pension liability cannot be left to run unchecked, but even before the credit crunch the debate was emotive and there is deep resentment among public sector workers at being lectured by politicians – who have a nice retirement deal of their own – or captains of industry (likewise).

As Tony Cutler and Barbara Waine of the Centre for Research on Socio-Cultural Change point out in a recent paper (Moral Outrage and Questionable Polarities, www.cresc.ac.uk), the language used in discussions is often inflammatory and moralistic, claiming public sector workers are beneficiaries of "pensions apartheid" and "gold-plated" retirements.

That paints a highly misleading picture of what awaits low-paid council staff – although in fairness, equivalent private sector workers will almost certainly be even worse off when they retire.

The alleged public-private duality is overplayed: only those at the top of the public sector have pensions that could reasonably be described as gilt-edged. Very, very senior civil servants might receive an annual pension of £50,000 to £100,000 a year.

The CBI does not highlight that a number of private sector executives are in line for double that, and there are at least 10 FTSE 100 directors aged over 50 who are on track for an annual payout of more than half a million a year for life.

It is a similar story with David Cameron's pledge to stop any senior public sector manager earning more than 20 times as much as the lowest paid employee. Calculations by the Guardian found that would force 10 bosses at companies which signed the Conservatives' national insurance letter to reduce their pay and bonuses by a combined £74m to comply.

Even if it is a bit rich under these circumstances for an organisation of industry leaders to prescribe pension curbs for people much poorer than themselves, the CBI's idea of an independent commission on private sector pensions is not an outrageous one. However the real pensions apartheid is not between public and private sector employees, but between top earners who still enjoy generous provision and everybody else.

Neither does the CBI delve into trend for employers to pull up the drawbridge on final-salary pension plans. Membership fell to 2.6 million in 2008 from 3.6 million in 2004. More than 70% of such schemes are closed to new members or have gone further and shut to existing members.

This has contributed to an alarming increase in the number of people with no pension savings at all. Figures from the Office for National Statistics show that the share of the private sector workforce without any coverage was 62.6% in 2008, up from 54.7% in 1999.

Most alarming of all, young people are not acquiring the pensions habit. The Annual Survey on Hours and Earnings shows that of the 16-21 age group, 89.9% had made no pension provision at all and in the 22-29 age group, 64% had nothing. Pensions might not seem a big priority for youngsters, but it is expensive to regain lost ground later.

Before turning the heavy guns on public sector retirement plans, we should remember the dangers of losing the pension culture: we are already sowing the seeds for another financial crisis.

■ On the subject of businessmen lecturing the rest of us, a number of those who signed the Tory letter on national insurance, including the bosses of mining group Xstrata, SAB Miller and Tullow Oil, have only small UK workforces, and so cannot claim their companies would be hard hit. And their claim that they are expressing personal views, not a corporate stance, is disingenuous. This ill-advised letter was signed in their capacity as business leaders, and exploited as such. What an unedifying episode.

It always felt as if the right for disgruntled consumers to take "class actions" against financial firms was added to the financial services bill at the eleventh hour. Little surprise, then, that the planned provision was withdrawn in the dying days of the government to ensure that the bill, which is bringing in powers to let the FSA tear up bankers' contracts if they are too risky, is passed. The fact that big firms had been campaigning hard against the provision that could have forced them to pay out redress to customers demonstrates this is a right consumers would have welcomed after years of mistreatment over the sales of endowment policies, pensions, split capital trusts and the like. The next government should ensure it puts the provision back on the legislative agenda.