All firms will have to offer pensions

Rules announced by the Government yesterday will lead to as many as eight million people saving into pensions for the first time.

But critics warned the move could hit the competitiveness of small businesses, while there are also fears it may lead to a "levelling down" of company pension schemes in line with the minimum required contribution levels.

The rules will let companies wait for three months before enrolling staff – to reduce costs for firms that employ large numbers of temporary workers.

The amount people have to be earning before they are automatically enrolled has also been increased from 5,035 under the previous government's proposals to 7,475 – in line with the level at which income tax is paid.

Other measures to help companies manage the introduction include simplifying the process so firms can show that their schemes meet minimum standards while the red tape surrounding pensions is reduced.

The previous government set out plans for all workers to be automatically enrolled into company pension schemes from October 2012 – although they will retain the right to opt out. Individuals will have to contribute 4 per cent of their pay to the schemes, with companies paying 3 per cent. The Government will add 1 per cent more.

Yesterday's announcement follows an independent review of auto-enrolment, commissioned by the coalition Government in June.

It had considered exempting firms that employ four or fewer people from the requirements but has decided that the rules would apply to all companies.

Firms that do not have their own schemes will be able to enrol their workers into the National Employment Savings Trust (Nest), a low-cost alternative set up by the Government.

Pensions Minister Steve Webb said: "Our reforms will ensure that millions of people will start to save for their retirement, many for the first time.

"I welcome the sensible and balanced proposals from the independent review team, which will help ensure automatic enrolment works."

Auto-enrolment will be gradually introduced between October 2012 and September 2016, starting with large employers, followed by medium ones and finally small businesses and firms set up after April 2012, although they can start sooner if they wish.

Contribution levels will also be built up gradually and staff who want to join company schemes before the three-month waiting period is up can do so.

CBI deputy director general John Cridland said: "The most important thing is that all eligible employees will be included. This will mean that the reform achieves its aim of boosting pension saving for all."

The Federation of Small Businesses said it was "extremely disappointed" that micro firms were not exempt and warned that administrative costs would damage companies employing 10 people or fewer.

TUC General Secretary Brendan Barber said: "This review could have ripped the heart out of the hard-won consensus to implement Lord Turner's Pensions Commission. It is good news that it has not, but there are still some backward steps in its recommendations and the Government's response.

"The main losers from this increase will be part-time women workers, the least-likely group in the workforce to have a pension."

PROTEST AT HOUSES OF PARLIAMENT

Hundreds of pensioners rallied outside the Houses of Parliament yesterday to protest at cuts to local services and changes to their pensions.

Some wore masks of Nick Clegg and David Cameron at the rally organised by the National Pensioners Convention.

Among their concerns was the 27 per cent cut in grants to local authorities announced in last week's spending review.