All UK companies will have to offer their staff a pension from 2012, the Government announced today.
The new rules, which will lead to up to 8 million people saving into a pension for the first time, will apply to every firm, regardless of how many workers it employs.
But companies will be able to wait for three months before staff are enrolled into a pension scheme, to reduce costs for firms that employ large numbers of temporary workers.
The amount people have to be earning before they are automatically enrolled has also been increased from £5,035 under the previous government's proposals to £7,475 - in line with the level at which income tax is paid.
Other measures to help companies manage the changes include simplifying the process for firms to show that their pension schemes meet the minimum standards required and further measures to reduce the red tape surrounding pension schemes.
The previous government set out plans for all workers to be automatically enrolled into a company pension scheme from October 2012, although they will retain the right to opt out.
Individuals will have to contribute 4% of their pay to the schemes, with companies paying in 3% and the Government topping this up with 1%.
Today's announcement follows an independent review on auto-enrolment, which was launched by the new Government in June.
It had considered exempting firms that employ four or fewer people from the new requirements, but has decided that the rules will apply to all companies.
Companies that do not offer their own pension scheme will be able to enrol their workers into the National Employment Savings Trust (Nest), a low-cost scheme set up by the Government.
Pensions Minister Steve Webb said: "Our reforms will ensure that millions of people will start to save for their retirement, many for the first time.
"I welcome the sensible and balanced proposals from the independent review team, which will help ensure automatic enrolment works."
But critics of the scheme have warned that it could hit the competitiveness of small businesses, while there are also fears that it will lead to a "levelling down" of company pension schemes in line with the minimum contribution levels required.
Auto-enrolment will be gradually introduced between October 2012 and September 2016, starting with large employers, followed by medium ones and finally small businesses and companies set up after April 2012, although firms can bring it in sooner if they wish.
Contribution levels will also be built up gradually, and will initially be set at a minimum of 2%, of which 1% will come from the employer, rising to a total of 5% by September 2017, 2% of which will be paid by companies, and increasing to the full 8% by October of that year.
Staff who want to join their company scheme before the three-month waiting period is up will be able to do so.
The British Chambers of Commerce welcomed the changes announced today.
Dr Adam Marshall, director of policy at the BCC, said: "Businesses will be relieved to hear that the Government has decided to simplify and streamline the 2012 pension reforms - which represent an enormous change to private pension provision.
"Thanks to the 12-week exemption, companies with a high turnover of staff or a large number of seasonal workers will not have to spend a lot of time and money enrolling employees into pensions that they do not intend to continue."
Maggie Craig, acting director general of the Association of British Insurers, said: "This is good news for millions of people.
"The most important outcome of today's review is that the Government will press on with the 2012 pension reforms which will see more people saving for their retirement.
"We think it is right to raise the income threshold someone has to earn before being automatically enrolled, although we would have preferred a higher level of £10,000 to make sure more people clearly benefit from saving."
Business group the CBI welcomed the changes, which it said would make auto-enrolment easier for companies, while still meeting all of the original aims.
John Cridland, deputy director general of the CBI, said: "The most important thing is that all eligible employees will be included. This will mean that the reform achieves its aim of boosting pension saving for all.
"The Government has rightly chosen to simplify the rules for all employers, rather than carve some out and leave others to cope with a high regulatory burden.
"It is also right that auto-enrolment will kick in three months after someone has started a job. This will avoid people on short-term assignments, who want to maximise their income, being auto-enrolled."
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: "The Government has listened to most of the NAPF's recommendations by adopting a common-sense approach that will widen pension provision, whilst still keeping existing good schemes open.
"It is a relief that all employers will be brought into the 2012 programme, and that smaller outfits will not be exempt. The whole point of this reform is that pensions reach all workers, including those in small firms."
But the Federation of Small Businesses said it was "extremely disappointed" that the Government was not exempting micro firms from the rules.
It warned that the cost and time spent on administrative work would damage companies employing 10 people or less.
Mike Cherry, policy chairman of the Federation of Small Businesses, said: "While the FSB welcomes initiatives to help people save for their future, the FSB is severely disappointed the Government has not listened to the needs of the UK's micro firms and has not made them exempt from automatic enrolment into pensions, which will cost employers in time and money."
TUC General Secretary Brendan Barber said: "This review could have ripped the heart out of the hard-won consensus to implement Lord Turner's Pensions Commission.
"It is good news that it has not, but there are still some backward steps in its recommendations and the Government's response.
"We are concerned at the increase in the threshold for auto-enrolment and the three-month waiting period.
"The main losers from this increase will be part-time women workers, the least-likely group in the workforce to have a pension."Reuse content