Plans for a new low cost pensions scheme were hailed b y the Government yesterday as the catalyst for a new savings culture.

Pensions Secretary John Hutton said the new "personal accounts" were a simple but radical way to encourage millions to save for their retirement.

Employees without an occupational pension will be automatically enrolled in the scheme - which is due to take effect in 2012 - unless they opt out. A key feature of the proposals is that for the first time employers will be forced to contribute if their staff join up.

Employees will pay in four per cent of their salary and employers three per cent, with the Government providing an additional one per cent in tax relief.

Unveiling the White Paper plans in the Commons, Mr Hutton told MPs: "Personal accounts will help millions of people take greater responsibility for building their retirement savings and embed a new savings culture at the heart of a comprehensive and balanced pensions settlement.

"These reforms set a sustainable and sensible course. They are in the long-term interests not only of this generation, but of generations to come."

Shadow pensions secretary Philip Hammond broadly welcomed the moves, but said the Conservatives had three major areas of concern.

Mr Hutton warned that unless action was taken now to combat chronic undersaving, the country would face "serious problems" in the future.

From 2012, employers will automatically enrol employees into personal accounts or their own existing occupational scheme.

Mr Hutton told the House: "This simple but radical step will affect around 10 million employees in Britain and will be vital in overcoming the barriers that prevent many people from making the decision to save."

An independent Personal Accounts Delivery Authority will commission the scheme which will be underpinned by a compliance regime.

A new personal accounts board - also independent of Government - will later become responsible for the live running of the accounts.

Mr Hutton added: "There will be a choice of funds for those who want it which we expect to include the option of social, environmental and ethical investments and branded products. For those who do not want a choice there will be a default fund."

The Pensions Secretary said personal accounts were designed to complement not compete with the existing market.

As such, there would be no transfers into or out of the accounts from existing schemes. And an annual limit will restrict the level of contributions an individual can make - this will be £10,000 in the first year with a maximum of £5,000 proposed for subsequent years.

Employers will be exempt from the automatic enrolment requirements if they already operate a scheme of broadly equal value.

Mr Hutton said the national scheme would give people greater incentive to save.

"The vast majority of people can expect to benefit in retirement from saving in personal accounts or an equivalent scheme," he added.