Many small firms are worrying about their ability to fund compulsory pension contributions for their employees, and those that aren‘t should be, new research suggests.

A survey by Manchester Business School suggests that the cost to companies of administering the scheme will be a total of £1bn a year, far higher than the government‘s own estimate of £254m.

Separate research by GE Commercial Finance warns that 15% of companies with more than 10 people are already worried about their ability to meet the extra cost when the pensions proposal goes live in 2012.

But according to statistics from the Department of Work and Pensions carried out in 2005, only 35% of companies with more than 10 employees have company pension schemes, suggesting that this will be an issue for far more than the 15% that are currently worried.

The GE survey, meanwhile, suggests just 5% of companies have put ’sorting out the company pension scheme‘ in their top three priorities for 2007, indicating this is not yet an issue that has filtered through to the majority of small businesses.

Quoting a figure of £100bn cited in a Deloitte report published in October 2006, John Jenkins, chief executive of GE Commercial Finance (business Finance), said: “With the overall pension deficit estimated at around £100bn and businesses required to offer and contribute to an employee personal pension account by 2012, the findings highlight the pension pressures that small companies already face.

“As large businesses and the public sector are often the main focus of pension discussion, it is easy to overlook the difficulties being faced by small firms,” he added.

The British Chamber of Commerce, meanwhile, has called on the government to reduce the amount of national insurance due on an employee‘s first five years in the job to offset part of the compulsory employer contribution of 3% of earnings for staff on between £5,000 and £30,000 a year.

“The actual impact of the personal accounts system on businesses has clearly not been properly calculated,” said David Frost, director general of the BCC. “The government is right to look at radical reform but businesses will need assistance if they are to meet the cost of implementing the scheme.”