The government's controversial stakeholder pensions have been officially brought into effect after months of wrangling with the insurance and business lobbies.

From Friday people can start paying money into the new pensions which are available from a range of financial services companies. Stakeholder pensions, designed to provide a low cost, will be a privately-funded supplement to the basic state pension.

Social security secretary Alistair Darling said "Stakeholder pensions will change the face of how people save for their future. Because they are flexible and value for money they are a good deal for lots of consumers who do not have other pension options available to them."

He also commented: "We want employees who can save to do so. Stakeholder pensions provide another option to occupational and personal pensions."

The Welfare Reform and Pensions Act 1999 required all firms with five employees or more to provide relevant employees with access to a stakeholder pension by October 2001 unless they are exempt. The Occupational Pensions Regulatory Authority has the power to fine non-exempt employers up to £50,000 if they fail to offer their staff access to a stakeholder pension.

Digby Jones, CBI director-general, said: "Stakeholder pensions will provide many more people with access to good value pensions as a means to save for their retirement and the CBI has successfully lobbied to minimise the burden of the new rules to business."

However the Conservatives argue that concerns remain over the administrative burden the new pensions might place on small businesses.

David Willetts, shadow social security secretary, also argued that stakeholder pensions "are not right for a lot of people and there is a real danger of a new mis-selling scandal as people discover they would have been better off if they had used other savings vehicles or else merely relied on means-tested benefits."

The cap on the charges financial services firms can levy under the new arrangements has also encouraged a trend towards internet and telephone sales and away from the traditional salesforce approach.