The cost of setting up a personal account pension – the latest brainwave in the Government’s campaign to get people to provide for their retirement and due to be introduced in 2012 – may be four times current estimates, according to the Association of British Insurers (ABI).

Director general of the ABI, Stephen Haddrill, told the Work and Pensions Select Committee that it could cost £20 to set up an individual personal account.

As those without a good workplace pension or personal pension plan would be compelled to join, this is regarded as a politically sensitive issue.

The Government was hoping that the set-up costs of the new pension fund – proposed in 2005 – would be in the region of £5. Automatically enrolled employees will pay in 4% of their salary, with the contribution topped up by an extra 3% from employers and 1% of salary in the form of tax relief.

The original proposal for the scheme was that set-up costs would be very low, and annual charges kept to around 0.3%, although the ABI has always maintained these costs would be higher.

A spokesperson for the Department of Work and Pensions said: “It is too early to provide further specific costings while the business requirements for personal accounts are being developed.”