From October 2012 the largest businesses with more than 120,000 employees will have to pay into a pension scheme. This will happen in stages depending on size, from the largest employer to the smallest through to 2016, with start-up small business given additional time to prepare to comply.
Calling this the "most radical change to workplace entitlements since the introduction of the National Minimum Wage", secretary of state for work and pensions Yvette Cooper said: "Even during these difficult economic times, employers, industry and unions agreed with us that these reforms were vital in giving millions of people the chance to save in a pension for the first time.
"All employers will be required to pay into a pension for their workers for the first time. We have responded to the concerns of business to make the introduction of these reforms as straightforward as possible. Start-up businesses will be given valuable extra time to prepare for these changes as we come out of recession.
"The cost to all of us of doing nothing in the face of an ageing society is too great to ignore. Currently 14 million people get no contribution from their employer towards a pension and around seven million people are not saving enough for their retirement."
Start-up businesses created from 2012 will be given until 2016 to start enrolling staff, businesses employing 120,000 staff start enrolling in October 2012, with smaller businesses phased in over the next three years. Employer contributions will be phased in from 1% in 2012 to 2% in October 2016 and to the full 3% by 2017.
The Forum of Private Business (FPB) is cautiously welcoming the Government's concessions to small businesses over pension reform.
A survey carried out by the FPB following the initial announcement revealed 70% of respondents were concerned they would not be able to afford the original proposals and believed they would damage their businesses.
In all, 64% said introducing compulsory pension contributions would prevent them from employing more people, while 42% said they would prevent them investing in their businesses. Just 13% said the proposals would have no impact.
The FPB's director of HR, Nick Palin, said: "There remain serious concerns that small firms, which comprise more than 99% of all businesses in the UK and account for 59% of the private-sector working population, will ultimately bear the brunt of the pensions crisis and that job creation will suffer as a result."
Joanne Segars, National Association of Pension Funds' chief executive, added: "Today's announcement is an important step forward to ensuring every working person has a pension that comes with their job.
"The Government has listened to many of our concerns on how employers must auto-enrol their staff into a pension. We welcome the more pragmatic approach they have now taken.
"However, in a number of areas they have not gone far enough. Further changes will be needed to help maintain existing good quality provision."
