Government to allow auto-enrolment into workplace personal pensions - UPDATED

This comes after it received confirmation from European Commission that this was consistent with EU law this week.

The Bill already allows for automatic enrolment into trust-based pension schemes, but the government wanted to confirm that automatic enrolment into contract-based schemes would be allowed under EU law.

The previous interpretation of the Distance Marketing Directive and the Unfair Commercial Practices Directive was that contract-schemes could not automatically enrol members and had to operate an opt-in method – which normally requiring a signed letter of acceptance from the prospective member.

This new interpretation recognises the difference between an employer-sponsored scheme, to which the employer contributes, and individual personal pensions which have no employer involvement.

The re-interpretation of the directives will mean group personal pensions, group SIPPs and group stakeholder schemes can operate automatic enrolment when the government brings the rules into force in the UK.

Work and pensions secretary James Purnell said: "At present around £6.7bn is saved into workplace personal pensions annually by some three million employees, making it the second largest form of private sector pension membership in the UK.

"There are currently 4.7 million people who work for a company with a Workplace Personal Pension and are not members. This announcement will extend the benefits of automatic enrolment to millions more people - giving them the means to save for their retirement for the first time."

Pensions reform minister Mike O'Brien added: "We have worked hard with industry representatives and the European Commission to ensure we get this right and we are delighted with the outcome. A wide range of stakeholders supported our discussions with the Commission, which is a testament to the consensus we've managed to build around the Pension Commission reform package.

"Automatic enrolment is key to combating the inertia that prevents people from saving and I am pleased that millions of people who work for an employer who offers a Workplace Personal Pension will be able to benefit from this important social reform."

Association of British Insurers director general Stephen Haddrill added: "It is extremely good news that the government has confirmed its plans to include automatic-enrolment into workplace personal pension schemes as part of the 2012 pension reform package. The ABI has, from the start of this debate, consistently argued for this outcome to ensure that saving through workplace pensions continues to grow. This clarification will enable workplace personal pensions schemes to operate automatic enrolment and play an important role in the 2012 reforms.

"We are pleased that the government took this matter up successfully with the European Commission and look forward to the Pensions Bill being amended to reflect those discussions. We will work with the government on this and on the crafting of all relevant legislation."

NAPF chief executive Joanne Segars said: "The EU has made the right decision. This issue had been the elephant in the room for far too long and now it has been resolved, we can move forward."