Staff at small firms are set to receive more than £2 billion extra in pension contributions in the next three years.

Research showed employers in small and medium-sized companies currently pay 5.3 per cent of staff's salaries into pension schemes but they expected this to rise to 6.4 per cent by 2005.

The rise equates to an increase from £1,408 this year to £1,913 a person per year in 2005, an increase of £2.1 billion.

The findings of the Virgin Money study come as many firms are closing their final salary schemes to opt for less generous, defined contribution ones under which employees are left to shoulder the risks of stock market fluctuations.

Many are also reducing the amount they pay into the schemes, exacerbating Britain's £27 billion annual savings gap.

Gordon Maw, marketing manager of Virgin Money, said: "The pensions shortfall has been well publicised.

"However, our research reveals small and medium-sized companies are leading the way in working to improve the pension plight of thousands.

"It's clear employers are taking their role seriously, which is not surprising, as a pension is a great means of retaining staff."

The survey also found membership of pension schemes in smaller companies was only 45 per cent of the workforce, compared with an average of 64 per cent in large firms.

If small companies could recruit the same proportion of their workforce as large firms, the £2 billion figure could become almost £3 billion, the research said.