Plans to require employers to auto-enrol their staff into a pension will go ahead from 2012, the government has confirmed.

Under the plans, firms will have to offer workers a company pension or enrol them in the government-owned National Employment Savings Trust (Nest) scheme instead. Staff will be automatically entered into whichever pension arrangement applies, unless they opt out.

Ministers had ordered an independent review on whether to proceed with the measures, which will be phased in between 2012 and 2016. After receiving this report, the government has decided to continue with the plans, with one key change – a three-month waiting period before new employees have to be enrolled in the pension.

Despite objections from groups representing small businesses, employers of all sizes will be required to take part.

Announcing the decision, 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. Building on the consensus for pension reform, Nest will play its part as we transform the savings culture in this country.”

All workers earning an annual salary of more than the tax personal allowance (currently £7,475) will be eligible. The minimum contributions will start at just 2 per cent, (1 per cent each for employees and employers) but will be increased to 8 per cent (including 3 per cent from employers) by 2017.

The change will mean that between four and eight million people experience pension saving for the first time, the government estimates.

Joanne Segars, NAPF chief executive, welcomed the outcome of the review. “It is a relief that all employers will be brought into the 2012 programme, and that smaller outfits will not be exempt. The whole point of this reform is that pensions reach all workers, including those in small firms,” said Segars.

“Giving a three-month waiting period before an employee is auto-enrolled will help ensure that managing auto-enrolment is straightforward for employers. Staff who are keen to save can join the pension on day one, and don’t have to wait three months.”

TUC general secretary Brendan Barber also welcomed the move, but added: “We are concerned at the increase in the threshold for auto-enrolment and the three-month waiting period. The main losers from this increase will be part-time women workers, the least-likely group in the workforce to have a pension. The linking of the auto-enrolment threshold to the income tax threshold will make this worse if the coalition continues to raise the basic tax allowance.”

Source: James Brockett www.peoplemanagement.co.uk