One in five employers in Britain will cut jobs if they are forced to pay into pensions for their employees, new research suggests.
A survey of 800 firms by the British Chambers of Commerce (BCC) revealed other undesirable side-effects of compulsion. One in three said that they would freeze staff salaries to compensate, while a similar proportion would be forced to raise prices to customers to meet the additional costs.
"Forcing employers to contribute towards pensions would come at a high price both for businesses and their employees," said BCC director general David Frost.
"Compelling employers to pay into pension schemes would simply increase the cost of employing someone and it is clear that some firms would be forced to reduce the size of their workforce to meet this cost."
Smaller firms were already struggling to fund pension provision, Frost added. More than half (57 per cent) of the firms surveyed which do not pay contributions into an employee pension scheme said that they simply could not afford to do so.
Of these, three quarters were companies employing fewer than 50 people.
"We will continue to press the government to introduce some form of additional financial incentive to encourage and enable small businesses to provide pension contributions," Mr Frost said.
"Indeed, more than half of firms that do not currently offer a contribution say that such a move could persuade them to do so."
The BCC survey comes ahead of long-awaited recommendations from the government's Pensions Commission as to how to tackle Britain's growing pensions crisis, which are expected to be published in the autumn.
In the meantime, a deep divide has grown up between organisation which support some form of compulsory saving by either individuals and / or employers, and those which do not.
In the former camp, trades unions and some employers groups such as the EEF have called for an element of employer pensions compulsion to be introduced.
And earlier this week, the Consumers' Association urged the Pensions Commission "to grasp the nettle of compulsion now", adding that this was "not the political suicide assumed by many".
But the CBI has described employer compulsion as "a tax on jobs", while pensions consultants Mercer described the idea of compulsory individual pension saving as "unaffordable and unrealistic".
Meanwhile, research for the European Commission has demonstrated that non-wage labour costs are an active impediment to the growth of small organisations in Europe and discourage firms from taking on staff.
The BCC's remedy is for the government should do more to encourage individuals to save for their retirements as well as offering concessions to employers, half of whom said they ore if the government provided some form of incentive to do so.
"The failure of individuals to save is undoubtedly due to a range of factors. However, we now need to see real measures to encourage more people to pay into pensions," David Frost said.
"This means better government-led information for employees about the benefits of pension saving, greater use of automatic enrolment in company pension schemes and a simpler state pension system that complements individual saving rather than discourages it."