Lord Turner, originator of the idea of personal accounts

The system will be designed to enrol employees automatically who are not able to join a good scheme run by their own employer.

Employers as well as staff will have to make contributions, to improve the level of pension saving in the UK.

The idea was first proposed by Lord Turner's Pensions Commission in 2005.

In her speech outlining the government's legislative plans, the Queen said: "A Bill will place a duty on every employer to contribute to good quality workplace pensions for their employees."

The new law will also impose automatic enrolment and compulsory employer contributions on existing company pension schemes to encourage fuller take up.

"For years to come, personal accounts should provide an effective way of helping low to medium income employees who do not currently have access to a good workplace pension," said Joanne Segars of the National Association of Pension Funds.

Automatic enrolment

It is expected that the new system will be operational from 2012.

PERSONAL ACCOUNTS EXPLAINED Employees compelled to join the scheme, unless they already have a good workplace pension or choose to opt out Contributions will be paid on earnings between �5,000 and �33,500 p.a. There will be an annual ceiling on total contributions of �3,600 People will not be able to transfer funds from existing pension plans Contributions will be collected centrally and paid into a choice of investment funds Start date for personal accounts will be 2012 Personal accounts part of a wider pension shake-up involving a raising of the state pension age to 68

Staff will pay in 4% of their salaries and employers 3%, with an extra 1% from the government in the form of tax relief.

The Pensions Act 2007 has already set up the Personal Accounts Delivery Authority, an independent body charged with getting the new system up and running.

The next Pensions Bill will give the authority executive powers to carry out this task.

Employees will be able to opt out of the new system if they wish.

But the government hopes that by introducing automatic enrolment it will overcome the barrier of inertia, which is one of the reasons why people do not save enough for their retirement.

The government estimates that about seven million workers are not putting enough away for their old age and that its new system will encourage savings from low to moderate earners in particular.

"We are pleased that the Government has decided to take up the Pensions Commission's recommendations for workers to be automatically enrolled into personal accounts or an occupational pension scheme, with the option to opt-out," said Age Concern.

"This scheme should finally make pensions saving worthwhile for the majority," it added.