The Co-operative Group has revealed its strategy for fulfilling the requirement to auto-enrol staff into a pension, which is introduced for the largest firms in October.

The company - which has more than 100,000 employees including 40,000 who do not currently contribute to a pension - will adopt a two-tier approach, with both defined benefit (DB) and defined contribution (DB) schemes playing a part.

The Co-op is keeping its relatively generous existing DB scheme, which pays a pension based on career average salary, but this will only be accessible to new staff after two years’ service. New joiners will initially be auto-enrolled into a DC scheme, which will have low minimum contributions of 1 per cent for the employee and 2 per cent for the employer.

Meanwhile, the DB pension is seeing a slight increase in employee contributions, from 6 to 8 per cent. While the scheme changes will come to operation in October this year, the Co-op will not begin auto-enrolling staff until its staging date under the legislation, which is January 2013.

“Our pensions review was driven by a number of factors,” said Gary Dewin, Director of Pensions at the Co-operative Group. “These included offering more choice to employees, a desire to make benefits fairer for all in line with our values and principles, as well as making them appropriate for employees in different situations. At the same time we wanted to ensure that our pension scheme remains an attractive recruitment and retention tool.”

He added: “We also wanted to make pensions simpler. Over the past few years the Co-operative Group has expanded through a series of successful mergers and acquisitions and this has led to an increase in the number of pension schemes run by the business. This resulted in a wide range of pension arrangements, which provided inconsistent benefits.”

He added that the Co-op was offering more than the minimum requirements for auto-enrolment, emphasising the value the company places on the benefit. The changes have received the backing of the shop workers’ union USDAW.

Many large firms have adopted a similar two-tier approach to the legislation. One other example is FirstGroup, which is offering staff a DC scheme with 5 per cent contributions for employer and employee, plus the opportunity to move to a DB scheme after nine years of service.