The pensions industry says the Government is jeopardising automatic enrolment into workplace pensions by stepping in to ban unregulated charging by advisers.

Major advisory firms, however, joined consumer campaigners in welcoming the decision by Pensions Minister Steve Webb, as heading off a potential mis-selling scandal.

As The Herald revealed in February, employees enrolled into a pension scheme risked seeing a significant proportion of their contributions disappear in adviser charges, after the outgoing Financial Services Authority approved "consultancy charging" for corporate pensions.

Although modelled on the new "adviser charging" for retail investments and individual pensions, consultancy charging is agreed with the employer and allows potentially large deductions from pension pots unbeknown to the employee, without specific regulation.

Mr Webb said: "With millions of people taking up pension saving for the first time under automatic enrolment, we have to give people confidence that they will get good value for money."

The minister said he was now looking at alternatives, including a cap on charges for default funds.

However, the Association of British Insurers said the decision put the success of auto-enrolment at risk.

Ewan Smith, managing director of Scottish Life, said: "We are very disappointed by this announcement as we believe it will undermine the success of automatic enrolment.

"All the research and experience we have in the SME market tells us that employers require professional support in meeting the challenge."

Joanne Segars, director-general of the National Association of Pension Funds, said: "Excessive consultancy charges can be a serious problem, and we are concerned about them, but a blanket ban is too simplistic.

"Employers should not be allowed to pass on charges for advice that does not directly benefit the saver, such as guidance on complying with auto-enrolment laws. But sometimes savers can benefit from the advice that comes with these charges."

But Adam Phillips, chair of the Financial Services Consumer Panel, said: "Consultancy charging would have taken significant money from member contributions in the first two years of scheme membership.

"For frequent job changers the impact would have been particularly pernicious. They would have suffered losses every time they joined a new employer's scheme.

"We welcome the Government's action in removing this potential source of serious detriment that could have damaged confidence in pension saving and auto-enrolment."

Pensions campaigner Dr Ros Altmann, congratulating Mr Webb, said: "Although the workers foot the bill, they receive nothing in exchange.

"Worse still, because the advice is being given to the employer and not individuals, these consultants are not even required to have the standard qualifications and are not covered by the normal regulatory protections."

In a recent Which? mystery shopping exercise, various insurance companies agreed to charging each worker £400-£450 for the first year and then ongoing annual charges on further contributions each year, ranging from £5 a year to 7.5% a year for the first five years.

Dr Altmann said: "For a low earner, these kinds of fee levels could see their pension fund reduced by nearly half yet they can do nothing to protect themselves."

Richard Lloyd, Which? executive director, said it was "a big win for millions of consumers".

Tom McPhail at Hargreaves Lansdown said without the ban "some people will be deterred from investing for fear they will be ripped off and in a minority of cases such fears may be justified".