Auto-enrolment will result in 600,000 more people saving in pensions by the end of the year

From today the largest employers, such as banks and supermarkets, will begin automatically enrolling eligible workers into a suitable workplace pension scheme. Smaller employers will follow in a staggered implementation programme, running until April 2017. Employers will be required by law to make contributions towards the pensions of automatically enrolled workers who do not opt out of the scheme.

"We are proud to be introducing this truly historic change, which will radically alter the way we save for our old age, and see millions more people putting something aside for the future," said pensions minister Steve Webb. "If we can get between six and nine million more people saving in a pension by the time all employers are in, that's a genuine savings revolution."

Once auto-enrolment takes effect, employers will have to begin enrolling eligible workers into a suitable workplace pension scheme or the National Employment Savings Trust (NEST). Both employers and workers will have to make minimum contributions to the scheme once enrolled; beginning with 1% and rising to 8% overall, including 1% tax relief, by 2018. Eligible workers are those aged between 22 and the state pension age earning over £8,105 a year.

Around two-thirds of workers are expected to remain saving once the programme takes effect, according to research by the Department of Work and Pensions (DWP). Only 9% of respondents to a DWP survey said that they would definitely opt out. Around 11 million people are not currently saving enough to achieve the pension income they are likely to want or expect in retirement, the DWP said, while less than one in three adults overall are currently saving despite increases in life expectancy.

Senior economists with the Institute for Fiscal Studies (IFS) said last week that although the changes would certainly increase pension saving among workers, they were "unsure" how overall saving would be affected in the long term. The Government's figures, the IFS said in an opinion column, were "unclear and not representative of how things will actually turn out". In addition, the report said, employers could lower pay rises to cover the cost of their contributions - with a knock-on effect on workers' savings.

"Simply getting more people to save in a pension will not achieve the Government's overall objectives if it is also accompanied by a reduction in the amounts saved into pensions or saved in other forms," the report said.

However, new research carried out by industry body the National Association of Pension Funds (NAPF) showed that among the two thirds of the workforce likely to remain saving after they were auto-enrolled into a pension scheme, 87% thought that the changes would make it easier for people to save. Of this group, 73% said that the interest rates on ISAs and savings were so low that pension saving was a "good option".

NAPF chief executive Joanne Segars described auto-enrolment as a "game-changer" particularly for those groups that have not traditionally saved for their old age - the young, the low-paid and those working for small businesses.

"The UK is drifting towards an iceberg when it comes to paying for its old age, and we need radical reform like this," she said. "Less than half the workforce is [currently] saving into a pension and, without auto-enrolment, millions would end up scraping by on the state pension alone. Some people might think about quitting their new pension, but we urge them to stick with it and get saving for their old age. Leaving the pension would mean losing tax breaks and employer contributions which are, in effect, 'free money'."