The auto enrollment process will still begin in a phased rollout from October 2012 for larger employers.
The Pensions Minister Steve Webb commented "We recognise that small businesses are operating in tough economic times, so we are softening the timetable for implementation to give them some additional breathing space,"
"We are committed to ensuring the employees of these small businesses get the chance to save, and that is why no one will miss out."
The British Chambers of Commerce (BCC) have welcomed the announcement. John Longworth, Director General, has said "Pensions auto-enrolment imposes huge costs on business, with the government's own estimates suggesting it will cost employers over £4.5bn per year,"
"Since smaller businesses will now not be required to auto-enrol their staff in pension schemes until the next Parliament at the earliest, the government has an important window of opportunity to pare back the costs they face when they do join the system."
The TUC however, have criticised the decision.
General Secretary Brendan Barber commented "Making staff in small businesses wait even longer before they get the right to an employer contribution to their pension is a grave disappointment,"
For full details of the article and the latest pension analysis visit the BBC pensions website.