The FSB opposes any form of compulsory employer contributions, which most small businesses would not be able to afford and which could lead to wage reductions and job losses.

The UK's biggest business organisation urged the government to make efforts to restore confidence in the private pensions industry and the financial services sector as a whole.

Carol Undy, FSB National Chairman, said, "The proposed three percent compulsory employer contribution will be a tax too far for small businesses. The bottom line is that most small employers simply cannot afford it and would be forced to make damaging cuts in other areas.

"The FSB recognises the need to tackle the pensions crisis and we welcome the current debate. But shackling small firms, the drivers of economic growth, with extra expense is not the answer.

"It is also disappointing to note that there has been very little debate about the self-employed. Furthermore, at a time when we are all being asked to make sacrifices, it was wholly wrong of the government to afford preferential treatment on the retirement age to the public sector."