New personal accounts

Pension provision will become compulsory for employers

The government’s new personal accounts will come into force in 2012. The new pension scheme will be aimed at workers who do not have access to a company pension.

The government hopes to provide employees with an automatic and straightforward way of saving in a pension, thereby reducing reliance on the State to fund their retirement.

The new scheme means that pension provision will be compulsory for employers for the first time. The government is still devising the details of the scheme, but it is expected to have about eight million members and receive £8 billion a year in contributions.

From the age of 22 all employees earning more than £5,000 a year will be enrolled automatically in either their employer’s company pension scheme or a personal account. However, employees will be able to opt out.

Under the personal account scheme, employers will have to contribute at least 3 per cent of a worker’s salary and the government will contribute 1 per cent in the form of tax relief. Workers can also add their own contributions up to £3,600 a year.

Personal accounts will be money-purchase schemes, with the maximum administration charge likely to be capped at 0.3 per cent. There will be a choice of investment funds, but there will be a default fund for those not wishing to make an investment choice.
Workers already in company schemes will not be enrolled into a personal account automatically.