Minister for Pensions Steve Webb said too many people have lots of small pension pots with different schemes
Workers who take their pensions with them to new employers risk losing up to a quarter of their funds under Government plans, pension funds and unions have warned.
Ministers want to make it easier for people to take their work pension with them when they change jobs. They say the "pot follows member" scheme could halve the number of dormant pension pots that would have otherwise been created by 2050.
But a letter to the Daily Telegraph, signed by National Association of Pension Funds chief executive Joanne Segars, TUC general secretary Brendan Barber, Age UK charity director general Michelle Mitchell and Which? chief executive Peter Vicary-Smith, warned of the damage the scheme could do.
They claimed that the plans would see money being transferred from good schemes with low fees to poor schemes with high fees, meaning that fund-holders would not get the best deal for when they retire.
The alliance called instead for a system of low-cost "aggregator schemes" under which retirement savings would be pooled in one place, giving clarity for savers. The difference between that scheme and the Government's plans could be up to 25%, the letter claims.
"We agree with the Government that a system to automatically transfer these small pots is necessary. It is vital that savers are able to get maximum value from even small amounts of savings.
"However, the Government's solution, where the pot follows an employee who moves job, is impractical and risks reducing individuals' retirement income. Pots could be transferred into poorly managed schemes, with high charges and low investment returns."
Unless the current system is changed, some 50 million pension pots could be sitting dormant by 2050, the Government estimates, and more than 12 million of these will be worth less than £2,000. Under the current system, people need to take more active steps to consolidate their savings.
Minister for Pensions Steve Webb said: "Far too many people have absurdly small amounts of money scattered between far too many pension schemes. I am determined to make sure that people start to build up decent pension pots and keep track of them.
"For too long, an overly complex system has made it hard for people to transfer their money between pension schemes. We need a big shake-up to make it safe, cost-effective and easy to move your pension pot around. It is time to stop debating different options and get on with making this positive change for consumers."