Undoing the 1% price cap on stakeholder products would only enable firms to maximise revenue from higher income earners without encouraging low- and medium-income earners to save more, warns the Consumers' Association.
Industry experts argue the price cap has to be increased in order to enable companies to make profits selling products to people on lower incomes.
However, the CA criticises this argument, saying it is merely a "smokescreen" to encourage the government to allow higher prices, and thus allow the industry to earn more money from high-income customers.
The attack comes just days ahead of the announcement expected from the Treasury on whether it will change the way stakeholder products are priced. The FSA is yet to decide how it might change the way the products are regulated.
The CA says the retail industry has never been interested in low- and medium-income consumers, and raising the cap now will not encourage firms to start selling to these groups.
Moreover, the CA suggests stakeholder charges would need to treble for products to reach consumers only able to invest comparatively small amounts each month, while at the same time satisfying shareholder expectations.
Increasing the cap by that much would be completely "unacceptable", the Association says.
Even if the government decided to raise the price cap by just 1%, consumers would be forced to up their contributions by 22% a month to provide the same level of pension in retirement, the CA explains.
The latest research by the Association points out nearly 80% of consumers believe that a cap rise of as little as 0.5% would make a big difference to their attitudes when it comes to investing in pensions.
Changing the way the products are regulated may also up the risk of mis-selling occuring, the CA adds.
The FSA's 'self-help' proposals would mean firms would have a "lower duty of care" to consumers, allowing unqualified staff to sell complex pension products to consumers on a more or less execution-only basis.
Combining this with higher charges would not only be "irresponsible", but would also "work as an invitation to mis-sell", the CA says through its principle policy adviser Mick McAteer.
"The government and the FSA must resist the temptation to go for short term fixes such as raising price caps or reducing regulatory protection to create the conditions which would allow a hugely mistrusted insurance industry to sell more products regardless of the long-term consequences.
"There is no objective economic justification for massively increasing charges and reducing consumer protection. Such actions would be counterproductive and a massive set back to efforts to get consumers to invest confidently, cost effectively and safely for a comfortable retirement."
Final details on the new pricing structure are reportedly being drafted this week, and the Treasury is expected to settle on either a 3% or 5% initial charge on all payments, with a 1% annual charge on top of that.IFAonline
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Reporting to Steve Hill
Appointed on 19 September