Personal Accounts and the White Paper
No more smoke and mirrors; weíre now in White Paper territory.† As youíre bound to know already the Government people finally put out their latest White Paper on pensions late yesterday afternoon, this time unveiling the new Personal Accounts that are one day going to be launched to avert our looming pension crisis.
Three things that I think need mentioning up-front and then Iíll slog through the detail for you.† First, the Personal Accounts are not going to be structured as Personal Pensions, but will be a massive occupational money-purchase scheme instead.† To the average man or woman in the street that wonít seem much of a difference, but I guess BeeHive readers will know it is a significant difference. Second, the DWP estimates that Personal Accounts will increase total saving by £8 billion a year, 40-50% of which will be 'new' money. To me that means £4 billion won't be 'new' money; so I presume it will be diverted from the existing schemes that the Government says it is hoping not to disrupt. Third, the Government appears to be paving the way for backtracking on the starting date of these personal Accounts.† Everything up to now has been looking like 2012 as a start date, but I notice yesterdayís announcement referred to an Ďaspirationí that they will be introduced then.† To me that says they wonít be with us until some time after 2012, but who knows?† And anyway, maybe itís not that important; I mean itís not as if itís ever going to come up in a quiz night is it?
Those of you who are interested in my views on the structure of this new idea of these personally owned and controlled pieces of occupational schemes can get to my previous BeeLines from my blog battle with one of the ministers if you like.† Those old words can be conjured up through the magic of the electrical ether by clicking on these links:
The idea behind Personal Accounts is that from whenever it is they eventually start eligible employees will be automatically enrolled into the big private-sector occupational scheme or into an employer-sponsored scheme of an acceptable standard.
Employees will contribute a minimum of 4 per cent, matched by a minimum 3 per cent employer contribution and around 1 per cent in the form of normal tax relief from the State. This is expected to overcome the inertia and short-termism that characterise attitudes to saving.
In bullet-point form what the Government say weíre going to get will be:
- a new scheme of low cost personal accounts based on the approach outlined by the Pensions Commission;
- a new national minimum employer contribution aimed at improving incentives to save and increase pension participation;
- a simple choice for members, which is expected to include ethical and branded funds for those who want them, and a default fund for those who do not want to make a choice;
- a different approach to delivering the scheme using a delivery authority, staffed by individuals with expertise in business and financial services;
- a governance scheme with operational independence, whose duty to consult members and act in their interests will be intended to insulate it from external pressures; and
- a set of policies to ensure that personal accounts will complement, rather than compete with, existing high quality pension provision, including no transfers in and out of personal accounts and a maximum annual contribution of at least £5,000.
The Government is also going to consult a bit more on whether employers offering significantly better schemes than the Personal Accounts could be allowed to operate waiting periods of up to six-months before auto-enrolment kicks in, as well as a few other things like that to help existing schemes keep on an even keel.† Obviously a lot of the detail is still not decided and it looks like weíll be finding out more about all this as next year drags on.† So nothing new on that front really.
Anyone whoís interested in more detail than Iíve sketched out here can get hold of a useful Executive Summary from the DWP by braving the ether once more.† You know how itís done.† Quite what you do if you want to access it, but youíre not an executive I donít know, but I wonít tell them if you donítÖ
13 December 2006
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