The Government proposes that employers are to be obliged to make pension contributions for their employees of 3% of earnings (within a band from around £5,000 per year to around £33,000 per year) from 2012.

In May 2006, the Department for Work and Pensions published its White Paper entitled 'Security in Retirement: Towards a New Pensions System'. The consultation period ended on 11 September 2006.

The White Paper followed on from the work done by the Pensions Commission set up by the Government to look into ways of addressing the pensions "crisis" in the UK. Included in the White Paper's main proposals was the introduction of a compulsory national savings scheme from 2012, funded jointly by employees and their employers.

The scheme will have the following key features:

1. Employees will contribute 4% of a band of earnings of between around £5,000 per year and £33,000 per year.
   
   
2. Employers will make minimum matching contributions of 3% on the same band of earnings.
   
   
3. A further 1% will be contributed in the form of normal tax relief. This 1% represents basic rate tax relief on individuals' contributions - in addition, individuals may be entitled to higher-rate tax relief and neither employers nor employees will pay tax or National Insurance contributions on employer contributions.
   
   
4. There will be some transitional protection for employers during the introduction of compulsory employer contributions in that employer contributions will be phased in over a three-year period, at the rate of 1% each year.
   
   
5. The Government will consult on transitional support for smaller businesses and as to whether a longer phasing in period is needed.
   
   
6. Employees will be automatically enrolled into either a new ‘personal accounts' scheme or their own employer's occupational scheme providing it meets a minimum standard:

• Employees will be able to opt out of this provision, in which case the employer would not contribute;
• Non-employees, including the self-employed and non-workers, will be able to opt into the scheme.

The Government's intended outcomes

• Everyone will be able to enrol into a new, low-cost personal account; and
• Automatic enrolment means that employees will be saving for a pension and employer will be liable to contribute in respect of them, except where an employee actively decides not to do so.

As 2012 approaches, employers will need to prepare for the new pensions obligation which the Government is proposing, subject to such transitional protection as can be negotiated in the meantime for smaller businesses.