The UK government has decided to go ahead with the National Employment Savings Trust, or Nest, as announced in October’s comprehensive spending review.

The coalition administration had promised a ‘quick and dirty’ review of Nest after the election, giving those opposed to it a chance to state their case.

But the need to boost the UK’s pretty lamentable level of pension savings won the day over the costs to employers and possibly the public purse. Nest will start with an employer contribution of 1% of earnings between £5,700 and £33,500, rising to 3%, with employees contributing 4% and tax relief another 1%.

The new national scheme is intended to become self-financing over time, but it is expected to cost public money initially.

Nest might cost money, but it is necessary if the auto-enrolment of employees into a suitable pension scheme from 2012 onwards is to work. It is expected to pick up those employees who are unattractive to private sector pension providers, such as those making low contributions.

Without Nest, employers might struggle to find a pension scheme for low-paid staff, making the introduction of auto-enrolment ineffective.

Here, it should be said that Nest and auto-enrolment are related but separate developments. Nest could be a success, as a well-run, low-cost scheme, but the overall reforms may fail if auto-enrolment doesn’t work; staff will be auto-enrolled into a pension scheme, probably after a three month waiting period, but can still opt out if they are determined not to contribute to a pension.

In any event, Nest and the accompanying auto-enrolment reforms should be the planning agenda for FDs and HR directors across the UK, now that uncertainty over their arrival has ended.

And pundits can now ask: will Nest and auto-enrolment achieve the goal of increasing pension saving? There have been warnings that there will be a ‘levelling down’, as employers cut pension contribution rates to the Nest minimum in order to make up for the increase in scheme membership produced by auto-enrolment.

Individuals too, might cut back on long-term savings made elsewhere, once they are auto-enrolled into Nest or another pension scheme.

The chance that Nest and auto-enrolment will not work was illustrated by a recent report from HM Revenue & Customs which warned that pension contributions in the UK were falling.

This is likely to be partly due to the recession and a tightening of belts. But it may also be a reaction of the persistent drip of negative stories about pensions, from Equitable Life, to collapsed DB schemes and lost benefits, to poor investment returns and high fund charges.

If Nest and auto-enrolment are to work, the Government needs to prepare the ground with a powerful communications campaign making the case for pensions and other long-term savings as an important part of everyone’s financial planning.

But the need for this might be undermined by a short-term desire to see more individual spending, not saving, to help an economy now coming to grips with lower levels of public spending.

So while Nest has been spared the axe, it might not get the full support it needs to take flight.