Stephen Haddrill, chief executive of the Association of British Insurers, said it was "very pleased" its proposals for the insurersto run the scheme werenow "clearly being taken seriously".

But with the Consumers' Association, Which?, strongly attacking the idea, advisers to John Hutton, pensions secretary, said the idea of a hybrid model, with a government agency collecting the contributions but employees then choosing the provider and type of investment, was just one option being examined by officials.

Stephen Timms, pensions minister, was present when officials discussed the issue with pensions industry representatives on Monday. But advisers to Mr Hutton said the idea had yet to gain political backing.

One said the original Pensions Commission proposal - for a national scheme to collect the cash but with the fund management then let on a competitive basis - "remains the one to beat".

Mr Haddrill said the hybrid proposal to allow employees to choose not just the type of investment but also the provider was understandable, given the government's desire to promote personal responsibility.

"But a lot of employees do look to their employer for advice on pensions andwe would like the employer role to be bigger," MrHaddrill said. "We would like the employer to choose the provider, with the employee being able to opt out and choose their own".

The ABI would also like more choice on the type of investment than the relatively limited number of funds the hybrid proposal appears to entail, he said.

Mick McAteer, its pensions specialist, said the hybrid model would inevitably involve sales costs as companies competed for employers' or employees' contributions. That in turn would push down the value of the eventual pension.

He added: "We just don't think consumers will want to be auto-enrolled into a scheme where they have to buy into pensions provided by the same insurance companies that brought pension mis-selling and the endowment crisis.

"We struggle to understand this. We can appreciate that the idea might be put into a white paper as an option to appease the industry but we would be horrified if it was the one the government finally adopted. It offers the worst of both worlds," Mr McAteer said.

However, the Pensions Policy Institute is expected next week to support a scheme offering more diverse providers, arguing that it is less risky to build on existing infrastructure than create a national scheme from scratch.

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