CBI Director-General Sir Digby Jones said, “The business community welcomed the Pensions Commission’s final report and the White Paper provides a sustainable long-term settlement on pensions.

“Raising the state pension will remove disincentives to save – but the price for a better pension is a higher state pension age, which the Government rightly recognises will have to rise gradually over the long-term.

"We must not see the benefits of restoring the earnings link and reducing means-testing introduced without the nation understanding they must pay for it with the raising of the state pension age.

“Business also supports a new national savings scheme for those on low incomes and without access to an employer’s occupational scheme. We must get the young and the low paid into the world of saving.

“But there will be anxiety amongst the business community that the Government is forging ahead with compulsory employer pension contributions despite the potential damage it could inflict on firms, particularly smaller ones.

“Compulsion will cost employers £2.3bn and they will need help in managing this burden. At the very least the Government must commit to a package of financial support for small firms to help them adjust and absorb the additional costs.”

The CBI has developed a range of proposals for financial support to help small firms make pensions contributions, at an estimated cost of £500m per year.(1) The Pensions Commission has argued similarly that the Government could provide close to £600m in financial support to firms, by paying the first £500 of employers’ pensions contributions, benefiting smallest firms most.(2) Sir Digby continued: “The proposal to put the three per cent employer contribution on the face of the Bill offers some reassurance to firms on how compulsion will be introduced. This should now be seen as the final settlement – and not the start of a negotiation.

"Business will fear, with justification in view of past performance, that trade unions will immediately put pressure on a Government which they financially support to ratchet up the three percent level. It is for the unions to convince employers otherwise.

“The Government obviously realises we’re entering uncharted waters. Phasing-in compulsion could help many employers manage the change – but the Government must go further. Without a meaningful package of financial support hard-pressed small firms will be left high and dry at the cost of jobs of the very people this was designed to help.

"What a lost opportunity that the Government did not set a better example with its own employees, who will still be able to retire at 60 on a full and generous pension, with private sector employees working longer and harder to pay for it.”