Today Pensions Minister Steve Webb announced the results of the review into auto-enrolment and NEST, which the government accepts in full. We now know the shape of workplace pension provision from 2012 onwards and employers and individuals alike can start planning accordingly.

Tom McPhail, Head of Pensions Research said: ‘Employers can now plan the steps they’ll need to take to ensure they comply with the new pension rules arriving in October 2012. With less than two years until these reforms go live there is no time to waste.’ He added ‘auto-enrolment is a positive and necessary step to encourage more retirement savings, however minimum contributions will run at just 2% of earnings until 2016 and up to eight percent thereafter. Workers who assume this guarantees a comfortable retirement are likely to be sorely disappointed. This level of contributions should therefore only be seen as a starting point for employees to build on. If NEST didn’t already exist it would have to be invented to make auto-enrolment a success. It will be a no frills pension, but one which small employers can buy off the shelf.’

Earnings threshold for auto-enrolment increased to £7,475. Employees will not need to be automatically enrolled into a pension unless they earn £7,475 or over. However contributions for these employees will be based on earnings above £5,715. This is to align these thresholds with those for paying income tax and National Insurance respectively.

The alignment with income tax and National Insurance thresholds will make it easier for employers to identify which workers they have to provide a pension for. The minimum pension contribution will now be at least £141 a year. This is more than it would have been under previous plans but would still produce a pension income of less than £5 a week after 20 years of saving.’

Automatic enrolment will apply to all employers. Small and large employers alike will have to abide by the new rules, thus avoiding a two tier private sector workforce. Small employers who were hoping for an exemption may not like this, but help will be available both from NEST and from private pension providers.’

A simple system for employers to certify their money purchase pension scheme is compliant. Making things simpler for employers who already have good pensions in place will encourage them to maintain those schemes and thereby reduce the chance of widespread leveling down.’