Every UK business should be made to offer a company pension scheme from 2012, according to a government review.
The BBC has learned the review, due later on Wednesday, will recommend that workers be automatically enrolled into occupational schemes, no matter how small the company.
Government estimates show about seven million people are currently not saving enough for retirement.
Critics say the plan will damage small firms and make them uncompetitive.
Pensions for all?
The principle of automatic enrolment of employees into pension schemes was established in the Pensions Act (2008), which set out reforms designed to make saving for retirement the norm among employees.
The cost and time spent on administrative work will damage micro firms” John Walker FSB
The key feature was that all employers should provide an adequate pension scheme for their eligible employees – typically those aged 22 or more and earning at least £5,035 a year.
If such a scheme was not provided, then the staff would have to be automatically enrolled in the forthcoming new state scheme, known as the National Employment Savings Trust (NEST).
Employers would also be forced to make a minimum level of contributions.
However, in June the coalition government announced a consultation and review of the precise scope of automatic enrolment.
Higher earnings level
The review, carried out for the Department for Work and Pensions (DWP), recommends allowing employers three months grace before staff are automatically enrolled, to ease the burden on companies employing large numbers of temporary workers.
The report says if a member of staff chooses to sign up before the three month period elapses, companies will be forced to make contributions then as well.
This is to make sure people who often change jobs can build up a pension pot for their retirement.
The review also recommends automatic enrolment should only apply when a person earns more than £7,500, considerably higher than the previously proposed level of £5,035.
Companies that do not have an occupational scheme, and choose not to set up one for themselves, will be compelled to use the NEST scheme.
This has been set up by the government to cater for low-to-moderate earners and their employers.
‘Damage’
John Walker, national chairman of the Federation of Small Businesses (FSB), said the revised plan would hit the smallest firms hardest.
“The FSB has constantly warned that the cost and time spent on administrative work will damage micro firms – those with 10 employees or less – and that the pension schemes set up by government do not meet their needs,” he said.
Business lobby group the CBI and the TUC both support small businesses being included in the scheme, saying it will help target those least likely to save for retirement.
David Ferris, senior consultant at the pension advisers Punter Southall, said including small businesses would only work if the process was kept simple.
“It will come down to the success of NEST,” he said.
“Can that organisation make hundreds of thousands of companies interact successfully with their online scheme by making it straightforward?”
The coalition government will now have to make a final decision on the review’s recommendations.
