Small companies should receive almost £1bn to help cope with the pensions white paper that will introduce compulsory employer contributions, the CBI has suggested.

In a fringe debate at the Labour party conference in Manchester, the body’s director general Richard Lambert said small companies would struggle to implement the new system and could threaten pension schemes that are already in place.

“The CBI supports the broad thrust of the pensions white paper,” he said. “It is a real opportunity to put pensions saving on a sound footing for the long-term. But there are dangers of unintended consequences which could undermine this aim. Many smaller firms will find the sheer costs of compulsion difficult to absorb.”

The organisation fears the introduction of compulsory pensions could undermine existing schemes by encouraging companies that already offer schemes to reduce their contributions to 3% of an employee’s salary, in line with the minimum requirement. It is also concerned about the ability of employees to opt out of the new scheme.

The CBI is proposing the smallest firms have contributions set at less than 3%, with staff having to work for a company for six months before they are automatically enrolled into a firm’s pension scheme. Companies should also be kept at arm’s length from the administration of such schemes, it added.

“Our proposals would give £850m worth of support to small firms for the benefit of their employees,” added Lambert. “This is a fraction of the £4bn-a-year windfall the government will save by ending the contracted-out rebate for defined contribution schemes.

“All of this £4bn should be ringfenced to support private pensions savings, with helping the smallest and most vulnerable firms the number one priority.”