Thousands of workers could be left £5,000 a year worse off in retirement following a government overhaul of the pensions system, industry experts claimed today.

A powerful alliance of pensions group including the Association of British Insurers (ABI) launched an attack on plans to introduce a new type of pension called Personal Accounts in 2012.

Workers could suffer a drastic loss of retirement income when Personal Accounts come into play, it warned in a submission to a Lords Committee considering this year's Pensions Bill.

It said that the introduction of Personal Accounts will "create widespread uncertainty for both employees and employers about their future financial liabilities" because of contribution rules linked to the new-style pension.

Personal Accounts will require employers to contribute 3 per cent of a worker's earnings between £5,035 - £33,540. Employees will be forced to put in 4 per cent of their salary.

Employer contributions to a typical workplace scheme are greater than this at 6 per cent and are based on the whole basic salary of employees, from the first pound earned.

The concern is that, as the legislation stands, existing schemes will be forced to adopt the lower Personal Account contribution levels. It is estimated that will cause a £900m fall in annual contributions to pension schemes, creating a damaging shortfall in employees' retirement funds.

The alliance wants the Pensions Bill to be amended to ensure that savers into Personal Accounts benefit from contributions based on their full salary.

Maggie Craig, ABI Director of Life and Savings, said: "We are urging the House of Lords to pass these amendments and ensure that millions of pension savers are not short-changed by the Government’s proposals.”

Tom McPhail, of adviser Hargreaves Lansdown, said: "As the reforms stand, we think that there is a real risk that some employers will move across to Personal Accounts. This could lead to a loss of pension provision for many workers in defined benefit and other company schemes."

He added: "This risk is much more significant now than it was when the Personal Accounts legislation was first drafted. The economic outlook is deteriorating, and employers are finding their margins squeezed by. It would hardly be surprising if they started looking for ways to cut corners. Unfortunately it will be their employees who end up suffering the cost of this in retirement."

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