The blueprint for pensions saving for millions of future employees was unveiled by the Government recently. It is expected to see up to ten million people putting between £4 and £5 billion a year into new personal accounts in a move to help reduce the UK’s pension savings gap.

The new personal accounts, which are set to go live in 2012, will not be compulsory. Employees who are not already enrolled into a better pension scheme run by their employer could automatically be enrolled into the new vehicles, although they will retain the right to opt out.

Under the proposals, money paid into a personal account would automatically be channelled into a default fund, likely to be a low-cost fund tracking the stock market. This may also include a ‘life styling’ function, so that the money is shifted into less volatile investments such as cash or bond funds as the employee approaches retirement.

Further fund choices could include funds run by well-known industry figures, although the charges on these funds could be higher. Ethical and social funds are also likely to be made available to investors.

The Government believes that its centrally administered model will allow fund charges on its default option to be just 0.3 per cent annually. Under the proposals, transfers in and out of the scheme would not be allowed at least up until 2020, when this restriction is set to be reviewed.

If you require any more information on this subject or would like to review your retirement planning position, please email or contact us for more information.

Levels and bases of, and reliefs from, taxation are subject to change.
Article date: March 2007