The insurer says the true cost of collecting the additional tax is almost as much as the £3.6bn worth of tax collected.
The Treasury’s impact assessment estimates the implementation costs to be around £345m but Standard Life has tallied the real cost to be nearer £2.5bn.
It says the initial costs for employers will be around £525m while the initial cost for employees will be around £1.38bn.
The insurer estimates the changes to initially cost pension schemes and providers another £525m and HM Revenue and Customs’ bill will be around £75m.
The department has also hugely underestimated the ongoing annual compliance costs, according to the firm. The Treasury suggests these will total £130m but Standard Life estimates the true annual burden to be as high as £435m.
It says ongoing costs for employers will total around £80m and employees will face costs of £273m on an ongoing basis. Standard Life says ongoing costs for pension schemes and providers will be around £52.6m and HMRC will have to pay out ongoing costs of £30m.
The insurer says the Treasury has failed to account for major costs such as individual advice and the extra expenses for providers in building alternative products.
It estimates that reducing the annual allowance, a popular alternative, would cost £459m for implementation, saving over £2bn immediately and have an ongoing annual cost of £118m.
Head of pensions policy John Lawson (pictured) says: “This is inefficiency gone mad – pension savers, their employers and their pension schemes will have to spend £2.5bn so that HM Treasury can collect £3.6bn of tax.
“Given the burdens faced by people as a result of the recession, adding further unnecessary bureaucratic cost adds insult to injury. The problem stems from the mind-boggling complexity of these rules. A simple reduction to the existing annual allowance would cost only a fraction of this to implement.”