Plans for a low cost pensions scheme aimed at encouraging millions of workers to save for their retirement will be unveiled today by the Government.

John Hutton, the Work and Pensions Secretary, will publish a White Paper setting out details of the new "personal accounts" which are due to take effect from 2012.

Under the plan, employees will be automatically enrolled into the scheme - although they will be able to opt out if they do not want to join.

Those who continue with the scheme will contribute 4 per cent of their earnings, which will be topped up by employer contributions of 3 per cent and tax relief of 1 per cent. Ministers hope that up to 10 million workers will benefit from the plan.

Currently it is estimated that about seven million employees are not saving enough for their retirement or have no savings at all.

The proposals follow a lengthy investigation by the Pensions Commission which published its findings last year. However, the plans have run into opposition from within the pensions industry.

Last week, the National Association of Pension Funds (NAPF) warned that companies with more generous schemes could be tempted to level down their contributions to the 3-per cent minimum.

The result in 20 years’ time, the NAPF said, could be a £10 billion-a-year reduction in the amount being saved in the workplace. It urged ministers to ensure personal accounts complemented rather than replaced existing schemes.

Mr Hutton conceded that there was nothing to stop employers cutting existing schemes but said there was no evidence they were planning to do so. And the White Paper would contain detailed proposals to "minimise the potential impact", he added.

"There is no law to stop that happening," he told the BBC Radio 4 Today programme. "What we’ve got to put in place is a minimum entitlement and that is what we are doing. That is a huge advance. And then we have got to engineer these new pension saving schemes in such a way as to minimise the potential adverse impact on existing schemes."

He added: "We have done a lot of research with employers and conducted extensive surveys. We have not yet detected any sense that people are saying ‘Right, now we are coming out of our existing occupational pension schemes’ because they use them, for obvious reasons, to recruit and retain their workers."

The overall impact on the wage bill of small firms would be a rise of about 0.6 per cent or 0.7 per cent, he said. "I think that is reasonable and fair."

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