The Department for Work and Pensions (DWP) has confirmed that its flagship private pension saving scheme, Personal Accounts, will not be in full operation until October 2016.

Ministers have reportedly opted to phase the auto-enrolment of members into their employers' existing pension schemes, or into the new Personal Accounts system, over three years to avoid a collapse in the scheme. In addition, employers will not have to pay three per cent of banded earnings into the scheme until the autumn of 2016, in recognition that the new savings approach will increase the cost of running a business.

For the first three years to 2014, employers will only be required to contribute a minimum of one per cent, then two per cent the following year, and the full three per cent from October 2016 onwards. Contributions from employees will also be staged. Large employers will be the first to join the initiative, with smaller employers last on the list.

"We believe this approach strikes the best balance between enabling employers to adjust gradually to the cost of the reforms, and increasing pension saving as quickly as possible," commented the DWP last Thursday.

The decision has been attacked by the industry, with the Association of British Insurers (ABI) labelling it "unacceptable".

"It means that no employer will have to pay more than one per cent until October 2015," said Maggie Craig, director of life and savings at the ABI. "As things stand, employers may be encouraged to ditch private schemes, which benefit from higher contributions, in favour of the state-backed scheme where they could pay just one per cent for at least three years."

Nigel Peaple, National Association of Pension Funds (NAPF) Director of Policy, said the association is pleased that the Government has taken note of its concerns over the complexity of the auto-enrolment rules. "We are pleased that the Government has listened to many of our concerns and made the auto-enrolment rules more flexible for employers and employees. Problems still remain, however, on issues such as opt-outs and refunds.

"In responding to the new consultation, we will continue to argue for a common sense approach. Auto-enrolment rules must be kept simple if we are to avoid 'levelling down'. Overall, it is important that the rules are right, not rushed."

The original Pensions Commission, under Lord Adair Turner, suggested that the scheme be in place to start in 2010.

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