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UK firms must provide staff pensions by 2012

All UK companies will have to offer their staff a pension from 2012, the Government has announced.

The new rules, which will lead to up to eight million people saving into a pension for the first time, will apply to every firm, regardless of how many workers it employs.

But companies will be able to wait for three months before staff are enrolled into a pension scheme, 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 changes include simplifying the process for firms to show that their pension schemes meet the minimum standards required and further measures to reduce the red tape surrounding pension schemes. The previous government set out plans for all workers to be automatically enrolled into a company pension scheme from October 2012, although they will retain the right to opt out.

Individuals will have to contribute 4% of their pay to the schemes, with companies paying in 3% and the Government topping this up with 1%.

The announcement follows an independent review on auto-enrolment, which was launched by the new Government in June.

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It had considered exempting firms that employ four or fewer people from the new requirements, but has decided that the rules will apply to all companies. Companies that do not offer their own pension scheme will be able to enrol their workers into the National Employment Savings Trust (Nest), a low-cost scheme which was established by the Government.

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

The British Chambers of Commerce, Association of British Insurers, CBI, and National Association of Pension Funds have all welcomed the reforms.

However, the Federation of Small Businesses and the TUC have voiced concerns about the possible negative impact on 'micro-businesses', and part-time women workers, the least likely group in the workforce to have a pension.