The government-sponsored national system for pension saving, due to come into force in 2012, is a “mis-selling scandal in the making,” warns Ned Cazalet, the independent life assurance analyst.

In a report published on Monday, Mr Cazalet, a respected commentator with a record of correctly forecasting industry trends, will say that for many lower paid workers the overall potential returns on contributions made under personal pension accounts could be “hugely negative”, largely because of the impact of means-testing.

“There are a significant number [of people] who are going to sustain losses worse than the worst losing streak at the Bellagio Casino,” he said.

Mr Cazalet’s findings undermine the government’s aim of encouraging lower paid workers to save for a pension.

He said that if a private sector insurer were selling products offering similar returns to personal accounts, it would face censure from the Financial Services Authority.

“If I was Cazalet Life Assurance Limited, if I was allowed to launch [a product like this] by my compliance officer, I would expect to face a massive fine for mis-selling and probably be put out of business,” he said.

His calculations of the potential return on contributions made under personal accounts take into account all the cashflows being paid into a pension pot prior to retirement, and all the income coming out in pension payments post-retirement.

The income in retirement would be secured by buying an annuity, a contract that promises to pay owners an income until they die.

“Sticking your money in a teapot, for many people is going to produce more,” said Mr Cazalet. According to his calculations, taking into account charges, but excluding means testing, total returns on contributions into personal accounts range from less than 5 per cent to minus 20 per cent.

Including means-testing the returns under most scenarios are negative, “strongly suggesting that there must be a better use to which employees’ and employers’ funds and tax relief could be put”, the report will say.

Returns on just the contributions made by employees, which have the benefit of tax relief and the employer’s contribution, excluding means-testing, range from 8 per cent to minus 8 per cent. Including means-testing many employees will lose out.

Many would be “a lot better off if they put their own money (forgoing employer contributions and tax relief on their own savings) into almost any other medium-to-low-risk savings vehicle”, the report will say.

The returns are also worsened by the fact that many people fail to keep paying into a pension policy.

The lower paid are even more at risk of dropping out. Their returns could also be reduced through their potentially having a lower life expectancy.

The Department for Work and Pensions could not be reached for comment.

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