Proposals for a new low-cost pension scheme in which employees who do not specifically opt out will be automatically enrolled and contribute four per cent of their earnings, matched by three per cent from employers and one per cent from the Government, were broadly welcomed in the West Midlands yesterday.

Doubts centred on the impact on small employers and possible knock-on effects damaging existing pension schemes.

Charlotte Ritchie, head of policy at Birmingham Chamber of Commerce and Industry warned: "Employers must be able to seek exemption from providing personal accounts (proposed to invest contributions) if they already offer a suitable

alternative scheme and automatically enrol employ-ees into that scheme instead.

"The majority of existing schemes already offer a contribution greater than three p er cent and personal accounts are designed to offer a minimum level of contributions.

"Individuals must be encouraged to take up the best possible provision available to them.

"Opting out of a good quality pension scheme with contributions of three per cent or above and into the personal accounts scheme should therefore be discouraged."

Research among the Chamber's members showed that most employers want to provide a pension for their employees, she added.

"It has to be as easy as possible for them to do so, through incentives rather than penalties."

EEF West Midlands welcomed the emphasis on simplicity for employers and employees. But Ian Smith, chief executive, was disappointed that the Government has not recognised the cost of t he scheme for small employers.

"The Government needs to provide small businesses with some financial support when it is initially introduced," he said.

"By ignoring the need for some form of initial financial assistance for smaller companies, the Government runs the risk of failing to gain their active support for personal accounts."

He also wants the Government to make it clear that employers will have to take account of the cost of the scheme when fixing future pay increases.

"The Low Pay Commission must also recognise these additional costs when making recommendations about future increases in the national minimum wage," he added.

Eversheds stressed the need for jargon-free regulation.

Esther White, the law firm's pensions expert, said: "The plans to enforce employers' pension contributions at three per cent could go some way to offset the failures of stakeholders pension plans, where employers are not legally obliged to contribute.

"However, the danger is that employers view the proposals as a further administrative and regulatory burden for which they will foot the bill, particularly smaller companies.

"To combat this, it is vital that the Government communicates the proposed changes to pension schemes,

which can often be viewed as unnecessarily complicated, in a straightforward and jargon-free way."

At the CBI, John Cridland, deputy director general, welcomed the proposals, but called for Government help in the early stages.

"Without a package of support measures, employers with existing schemes might be tempted to cut contributions to contain the expense, and firms without will see growth and employ-ment affected," he said.

"Fixing employer contributions at three per cent of wages will offer some reassurance to business that it will not be ratcheted up under pressure from the trades unions and a three-year phasing-in period could also help many employers manage the change."