The Chancellor has been urged to allow employers to contribute into a ‘Workplace Isa’ as an alternative to a pension, to prevent young workers abandoning long-term saving.

The Centre for Policy Studies says the new Isa is needed to counter the attractions of the Lifetime Isa, unveiled in last month’s Budget, which otherwise might act as a magnet to workers to opt out of auto-enrolment into a pension.

But pensions companies say such a move would add complexity and cost to an already confused landscape.

The Lifetime Isa will from next April allow savers under 40 to earn a 25per cent bonus from the government on up to £4000 a year if they use the cash for a first home deposit, or at age 60 for retirement. The government bonus will lapse after the age of 50.

Property takes priority over pension for more young savers, according to joint research published this week by consultancy MRM and the Chartered Institute for Securities & Investment. It found that 46per cent of those polled believed young people should be focusing on saving for a property, while 33per cent said pension saving was more important.

But there are concerns that the Lifetime Isa will undermine the success of pension auto-enrolment, prompting young workers whose first priority is getting on the housing ladder to opt out of their workplace pension scheme.

That could see them lose the key benefit of employer contributions, as there would be no compulsion on employers to pay into a non-pension arrangement.

Steve Webb, the former LibDem pensions minister now director of policy at mutual insurer Royal London, says: “There is a real danger that the new product will mean that many young people will not start pension saving for their retirement until their thirties or beyond and will struggle to make up for lost time.”

Mark Soper at website RetireEasy says for a 30-year-old on a salary of £20,000, the employer must add a minimum annual contribution of £192 immediately, doubling to £384 in April 2018 and trebling to £575 in 2019.

“If the 30-year-old chooses a LISA and opts out of a workplace pension, the employer does not need to contribute anything and, over 20 years, the individual will lose £10,546 total employer contributions plus investment return.”

Michael Johnson of CPS, who proposed the Lifetime Isa in a policy paper two years ago, says a Workplace Isa should be included in the auto-enrolment legislation.

Employer contributions, taxed at the employee’s marginal rate, would be paid into a Workplace Isa until the age of 50, as per the Lifetime Isa, and attract the same 25per cent Treasury bonus. Withdrawals would not be allowed until age 60, when they would be tax-free. Auto-enrolled contributions could be paid into a Lifetime Isa, rather than a pension, alongside other savings and be subject to the same rules.

Mr Johnson says the Workplace Isa “could be housed within the Lifetime Isa, leaving the individual with a single retirement savings vehicle”.

He says it would “of course compete with today’s occupational pension schemes”.

The point has not been lost on pensions companies. Zurich director Iain Mills says: “Introducing a ‘Workplace Isa’ is a sure-fire way of adding more complexity to the retirement landscape, creating confusion and deterring people from making longer-term savings.

"It would cause further disruption to the industry at a time when we need stability as auto-enrolment embeds. Employers, pension companies and payroll service organisations would also face large costs for moving to a completely new product structure.”

Mr Mills says employers would still need to auto-enrol new staff over age 40 into a pension and would need to offer three options to the under-40s. Both the Isas would require locking savings away to age 60. “This would create a two- tier system with some people potentially able to retire at 55, while others would be forced to work five years longer.”

He says a new regime might deter those employers now paying in more than the auto-enrolment minimums into their workplace schemes. “This would have very damaging long-term impacts.

"Employer contributions make up a large percentage of pension contributions and encourage employees to save with ‘matching incentives’. Any further changes made should encourage employee engagement with their pensions, which remain the most attractive and simple way for people to secure long-term savings for their retirement.”

Tom McPhail at Hargreaves Lansdown believes that as a workplace pension with an employer contribution "will deliver a better return than a Lifetime Isa for most people most of the time" pension opt-outs will be" relatively low."

Steven Cameron at Aegon UK in Edinburgh says allowing a Lifetime Isa to accept employer contributions "would destroy the foundations on which auto-enrolment was built and would be wholly incompatible".

The Lifetime Isa's catch is that if the funds are not used for property or left till 60, there is a 25per cent penalty.