Companies that employ fewer than 50 employees are to be given more time to prepare their pension schemes for automatic enrolment.
The Pensions Minister, Steve Webb has announced that firms of this size will be given more than a year extra time to comply with the new rules in a decision that could affect nearly four million employees in the UK.
The enrolment deadline for larger employers is October 2012 but the deadline has been extended for small firms from April 2014 to May 2015.
Mr Webb said: "We recognise that small businesses are operating in tough economic times, so we are softening the timetable for implementation to give them some additional breathing space."
However, all firms will still have to comply with auto-enrolment eventually.
"We are committed to ensuring the employees of these small businesses get the chance to save, and that is why no one will miss out," Mr Webb added.
The announcement from the Department for Work and Pensions (DWP) said that it still expected over half of all employees to be automatically enrolled before the end of this parliament.
Under auto-enrolment all employees will contribute to a mandatory pension scheme that is required to be set up by their employers, either through a current one or one that would be set up under NEST (National Employment Savings Trust).
All companies will be expected to contribute a minimum of three per cent of their employees’ salary and employees will have to pay at least four per cent. With tax relief added it will mean that the total contribution will make up a minimum of eight per cent of an individual’s salary.
Michelle Mitchell, Charity Director of Age UK said: "This is an extremely disappointing decision and one that will affect millions. It is appalling that the many employees who work for a firm with under 50 employees will miss out on at least a year's worth of contributions which will make a real difference to being able to save for a decent retirement.
However, the CBI welcomed the decision. Neil Carberry, CBI Director for Employment, said: "A longer phasing-in period for these reforms will help small firms cope with costs they would have incurred if they'd been brought in during 2014 and 2015. This will not compromise the goal of getting the vast majority of employees saving."
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