Scottish insurers are warning that the proposed national pension scheme being created by the Personal Accounts Delivery Authority (Pada) will damage retirement saving and put another burden on the taxpayer.

They say Pada is making secret and untested assumptions about the economic viability of its giant scheme which could lead to a huge risk for the public purse, and is creating rules that will threaten the continuation of good company schemes.

One rule says those who want to opt out of the new auto-enrolled Personal Accounts (such as the lowest paid) will have to ask for their contributions back - after seeing them deducted automatically from their pay.

The industry has failed so far in attempts to amend key clauses of the Pensions Bill, which goes to the Lords report stage next month. "It is really an employment bill, not a pensions bill," said Rachel Vahey, head of pensions development at Aegon UK.

"The implications for employers are immense, but not many people realise what is happening."

When personal accounts become statutory in less than four years' time, every employee will be automatically enrolled with a minimum 8% contribution including 1% from government and 3% from the employer, unless they opt out.

Stewart Ritchie, Aegon's former pensions director who retired last week, said opting out would be done "by ticking a box on the web" within perhaps six weeks of starting employment.

"Pension contributions will be taken off you then given back to you ... the scheme has to pay them back to the employer who pays them back to the member - which is OK if he is still working for them Personally I would rather we didn't take money off people then try to send it back again."

Ritchie added: "We don't know how many people will opt out, but in the KiwiSaver being launched in New Zealand, though it is not a direct read-across, at least 35% are going to opt out."

Many will opt out because they are already in good company pension schemes, and Pada has promised its creation will "complement not compete".

But the industry fears that Pada is constructing a fund which needs as many personal account holders as possible paying higher contributions to make it economically viable. It is also concerned that Pada's only accountability is to the Treasury Select Committee of MPs.

"They are reinventing the wheel at the taxpayer's risk," says Ritchie. "They have effectively built a life office, with a lot of money from the taxpayer. For this tax year alone it has cost £36m to help them design it."

The 150 staff are thought to include 80 civil servants on secondment, and 30 consultants.

Vahey added: "The risks are that they don't have enough knowledge and make the wrong assumptions or don't test them correctly. Pada are very reluctant to tell us how many people they think are going to go into the pension scheme, how much they are going to pay, and how long they are going to be there. For example, if they believe five million people will join in the first year, and it turns out to be four million, what sort of problems will that cause?"

Political pressure to keep charges as low as possible could put a strain on the economics, Vahey says. "They can't borrow money so they either get it from the taxpayer or put the price up ... Pada may not have done its sums right, but it can't be allowed to fail or it will bring down pensions."

Ritchie questions the use of taxpayers' money for a new authority and says the government could easily have activated the existing stakeholder pension legislation and also saved several years. "We could be there now. Someone who started saving now rather than waiting till 2012 would have an extra 15% on their income at retirement."

The government has also refused to listen to concern from the industry at its proposal to make companies change the way they measure employees' pensionable earnings.

Andrew Tully, senior pensions policy manager at Standard Life, commented: "Existing schemes and contracts of employment for over four million workers will need to be renegotiated." It would also "almost certainly result in lower contributions" from employers trying to adjust their own schemes to comply, while "other employers will simply close their schemes and place employees into personal accounts".

Steve Bee, head of pensions strategy at Scottish Life, has called for the bill to be put on hold while the government investigates how many of the lower-paid will have an incentive to save in a pension - because it would reduce their means-tested benefits on retirement.

Bee commented: "I would have thought it better to put the Bill on the back-burner while the Government go away and check just how many people are likely to be affected. Why carry on with making the Pension Bill into law before we know the answer to the big question?"

Ritchie commented: "These are the people who are the prime target for auto-enrolment but there is a serious problem here the huge expansion of means-testing in old age is Gordon Brown's own policy."

He said concentrating state resources on the most needy was sensible, but if the present guarantees continued, "a very significant number of lower earners are going to get to retirement and say I wish I hadn't been auto-enrolled' because they will not get value for the contributions they have made - it will count against them in the means-testing."