The UK's Department for Work and Pensions appears to have hit back at criticism by the Federation of Small Businesses of the automatic enrolment pension scheme set to come into force in October 2012.

Under the planned changes, as outlined in the 2008 Pensions Act and Workplace Pension Reform Regulations 2010, employers will be required to automatically enrol all eligible workers aged between 22 and the state pension age into a qualifying workplace pension scheme, unless the worker chooses to opt-out. Employers may choose either to enrol them into an existing pension scheme which meets or exceeds the minimum requirements set out in the reforms; amend their existing scheme to meet the qualifying standards, set up a new qualifying scheme, or enrol them into the National Employment Savings Trust (NEST).

The FSB has argued that the reforms represent a "ticking time bomb" for small businesses in the UK, and has called for micro-businesses to be exempted from the automatic enrolment requirement.

In its response to the consultation on this issue, the Federation warned that the increased administrative burden which will result under the new system is likely to have a significant negative impact on businesses with less than ten employees, and that in any case, the pension schemes outlined by the government do not meet the needs of small firms.

The FSB has therefore suggested that an alternative scheme be put in place for SMEs and micro-businesses, which would give all employees and self-employed workers the opportunity to save for a pension at an annual charge of 0.3% or less using a national payment collection scheme, such as PAYE, to decrease the administrative burden on small businesses.

The FSB also revealed that it was "extremely worried" that the majority of small businesses and their employees are unaware that the country's pension scheme will change in only two years time, and called on the Government to raise awareness of the default pension scheme.

Mike Cherry, Policy Chairman, Federation of Small Businesses, stated that:

"The FSB welcomes initiatives to help people save for their future in a pension but we are still concerned the new automatic enrolment pension scheme is going to be an administrative headache for small firms – particularly micro firms – and will cost them in time and money."

And continued:

"We know that small firms do not feel confident in choosing a pension scheme because of its complicated nature and we are thoroughly disappointed that five years on from the original proposals, the pensions industry has yet to come up with an efficient system to cater for micro firms."

However, in a statement published in late August, the Department for Work and Pensions argued that the planned new system was well supported in the business community, with 56% of the employers questioned, and 64% of eligible individuals supporting the automatic enrolment system.

DWP Minister, Lord Freud observed that:

"It is encouraging that, despite the recession, the majority of employers are still in favour of pension savings. We will work with business and the industry to make automatic enrolment work, so we can give millions more people the chance to save, and an independent review team is currently looking at how we get the details right.”

The Government announced an independent review of how to implement the auto-enrolment system at the end of June, and a team of three independent experts is scheduled to report back in the autumn.