July 2007

Personal Accounts Pensions

The government has published details of a new savings scheme which will give all employees the right to a workplace pension with a contribution from their employer. At present employers with five employees have to offer access to a pension scheme but do not have to make an employer contribution.

The government made the announcement in response to the Personal Accounts consultation which was recently published and new research showed strong support for plans to tackle ‘savings inertia’ by automatically enrolling employees into the new scheme.

Some of the key findings of the report were:

• 84% of people surveyed supported the idea of a national pension savings scheme such as personal accounts.

• 68% supported automatic enrolment, particularly if there was an employer contribution.

• Whilst most people recognise that saving for their retirement is important, one in three has never contributed to a private pension.

• 29% of people prioritise spending today over saving for tomorrow.
  Secretary of State for Work and Pensions, John Hutton, said:

“The new pensions saving scheme we are setting out today will be a major step forward for employees across Britain and can kick-start a new culture of retirement saving.

We know that people are far more likely to save for their retirement if they have access to a simple, low cost pension with a contribution from their employer. That is exactly what Personal Accounts will provide.

The details of the new scheme we are setting out today can help people overcome the inertia that holds people back from saving while taking important steps to protect existing pension provision.”

The government expect that six to ten million people would save in personal accounts from 2012. Personal accounts will have low charges which should ensure that people keep more of their savings.

Under the Personal Accounts scheme employees should see their savings in personal accounts matched £1 for £1 by a combination of contributions from their employer and the government. The proposal is that employees will be expected to contribute a minimum of 4% of their salary. The employer would contribute a minimum of 3% and this would be topped up by a further 1% from the government in tax relief.

This is a radical change as for the first time employees will have the right to a contribution from their employer which will increase the value of their pension fund.

To read more about the Personal Account Pensions visit the Department for Work and Pensions website.

Internet link:

DWP website