The compulsory pension savings scheme must be simple and cheap if it is to succeed, MPs have told parliament.
The planned system of Personal Accounts, similar to the proposed National Pensions Saving Scheme, has the potential to be a "remarkable success" for financial inclusion, the work and pensions committee concluded.
However, its report, published today, calls on ministers to focus on simplifying the system for employers and employees, and minimise costs for the consumer. Imposing management charges of 1.5 per cent rather than 0.5 per cent could mean people save 20 per cent less over a 40-year period, the report notes.
Commenting, committee chair Terry Rooney said: "The principles of the personal accounts system are exactly right - giving employees access to a low-cost savings scheme, where they can contribute, knowing their employer and the taxman are also putting money in."
"What we need now from government is serious engagement to make the system workable for employers and employees, and for it to set out its proposals on the provision of advice as soon as possible," he added.
The committee urges the government to reconsider its decision not to use pay-as-you-earn (PAYE) to collect contributions, pointing out employers support the system. Modernisations underway in the PAYE system would make it suitable, MPs note, and it remains the "logical way" to collect contributions from employers, employees and tax relief.
The government must also monitor the number of people opting out of the system, MPs urge, as well as consider how Personal Accounts will target the neediest. Providing simple and generic financial advice will be key to its success, the report concludes, but savers also need to be guided to tailored advice.
The Department for Work and Pensions said it welcomed the findings and would consider them in due course.
Personal Accounts will be introduced in 2012 and ministers say it could enable ten million people to access low cost pension savings schemes. Employees will pay four per cent of their salary into a savings account, matched by three per cent from employers and a one per cent tax relief.
As a final recommendation, MPs urged ministers to encourage employees to start saving now, calling on the government, industry and financial sector to work together "to ensure we do not inadvertently create a generation of non-savers".
Meanwhile, figures from the Office for National Statistics warn the UK's savings ratio has dropped to 3.7 per cent, down from 5.5 per cent in the last quarter.
Shadow chancellor George Osborne claimed this was "evidence" Gordon Brown has damaged pensions and household savings.