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Pensions: The Personal Account

In the UK, we are now living longer and having fewer children. As a result, workplace pension schemes have come under increasing pressure as they have to cover retirees for longer with less income. At the same time, people are not saving enough for their retirement off their own back so the government is getting worried about its own ability to cope with state payouts.

Consequently, the Government has decided it is time to try and persuade more individuals to start saving towards a private pension. Their latest measure is therefore the ‘Personal Account’, set for implementation in 2012 and designed to encourage both a greater level of saving for old age and open up access to saving for individuals who do not currently have a decent workplace pension scheme.

Therefore, from 2012, all eligible workers who are not already in a workplace scheme will be automatically enrolled either into their employer’s scheme or into a Personal Account. You could opt out from this if you want to but it is your responsibility to do so and by doing so, you would miss out on some of the incentives which the Government has attached to them.

Personal accounts are aimed primarily at low-to-moderate income earners aged from just 22 right up to state-pensionable age. The employee must contribute a minimum of 4% of their earnings between £5,035 and £33,500 to the scheme, meaning their take-home pay will be reduced. However, in doing so, they will also receive a corresponding 3% contribution from their employer and a further 1% in tax relief from the government, thereby doubling their own contribution.

There are still some unanswered questions about what Personal Accounts will ultimately look like. They are intended to be simple, inexpensive and run in the best interests of members; however, the structure so far appears quite complicated and information is relatively scarce. Moreover, there is still nothing to stop particular individuals from opting out, spending that 4% now and expecting the state to pick up the difference later on.

However, a choice of branded pension savings accounts will be available alongside a default account for individuals who do not wish to make a specific investment choice. Indeed, the Pensions Act of 2008 obliges all employers to enrol eligible employees into a good-quality workplace pension scheme, so Personal Accounts could provide a practical solution for both you and your employer. Whether they will be the most suitable pension arrangement you as an individual depends on your own personal circumstances, but it is worth investigating the options and getting ready for the opportunities which lie ahead.

Pearson Hinchliffe Financial Services | Hollinwood Business Centre, Albert Street, Hollinwood, Gtr Manchester, OL8 3QL
Telephone: +44 (0)161 785 3500, Fax: +44 (0)161 624 2589, Email: enquiries@pearson-hinchliffe.co.uk