Personal Accounts and real life
As the consultation on the shape of the proposed Personal Accounts continues there are plenty of good arguments being made for how the whole thing might work in practice in real life if it ever gets off the ground.† According to the TUC1 some employers have pointed out to the Government that it would be useful if there was a one-year waiting period imposed before compulsory employer pension contributions are levied.
Youíll know already that the central idea behind these proposed Personal Accounts2 is that payments of 4% of band earnings will be voluntary as far as employees are concerned, but if employees do sign up then employers will be faced with a 3% top-up being required on a compulsory basis.† Itíd be purely voluntary for employees, but compulsory for employers.
Employers have clearly started thinking about what this fiddly extra bit of pension red tape is likely to mean to already hard-pressed entrepreneurs trying to keep their businesses afloat.† Obviously if people chop and change jobs all the time then keeping all the records going for loads of tiny pension pots will be a bit on the tricky side.† Seasoned pension watchers among you will recall that our large occupational pension schemes have always struggled with this problem with waiting periods and refunds to short servers being the logical outcome.
From what the TUC1 are saying though, it would appear that making everyone new in a job wait for a year before they qualify for a pension from their employer would mean that one in six employees would be left high and dry without an employer contribution at any one time.† Thatís staggering.† If itís right then that means that something like 4.3 million people are always in the first 12 months of a new job!† Wow! †That makes me think that any pension system we put in place along the lines of the proposed Personal Accounts will be something of a nightmare for the body that volunteers to run it.† The record keeping and the tracking of a personís various employers and hours worked will depend on all sorts of joined-up and clever stuff going on with payroll systems.† Those of us whoíve done time in the industry know thatís been a hard-won goal for the larger employers.† Getting a good level of clean data in a system populated by the very smallest employers in the country with such an apparently high turnover of staff will be a good trick to pull off; especially as it will all need to be done on the cheap to meet the Governmentís low-cost objectives.
Iím pretty interested to see what the government guys eventually decide on all this.† Either way it goes; though, itís going to be complicated.
12 September 2006
1. TUC 'One in six could lose pension payments' - press release 31 August 2006
2. Pensions Commission Second Report - November 2006.
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