Personal Accounts

Personal Accounts are a proposed new pension system for all workers in the United Kingdom that do not already have a suitable company pension scheme. They will be a simple, universally available, defined contribution pension scheme, accumulating a fund of money during a worker's life which will be used to purchase a lifetime annuity at their retirement.

Proposed in the Pensions White Paper of May 2006, they are planned to be set up and running by 2012.

All employees will be automatically enrolled into the system, unless they opt out. Employers will deduct pension contributions from the employee's pay at the rate of 4% of salary between £5,035pa and £33,540pa (uprated by earnings growth from 06/07 baseline). To this, employers must add a compulsory contribution of 3%. The Government will add a further 1% by way of tax relief. From these contributions, charges will be deducted. The level of charges is expected by Government to be around 0.3% to 0.5% of each member's fund each year, but the final level has not yet been decided. Whether the charges will be collected in this way as a single fund management charge, or in some other form, is a current area of consultation.

Latest government estimates put participation in personal accounts at between 4 and 7 million people in the private sector U.K economy. Employees will be auto enrolled if they are aged over 22 and below state pension age, not contributing to a pension or in a pension scheme with an employer contribution of less then 3%, earning over £5,035 (uprated by earnings 06/07 baseline) and in the private sector. Auto enrollment will also occur in non-personal accounts schemes causing a surge in pension participation in the U.K after 2012.

There will also be phasing in of contributions in 2012,2013 and 2014. For individuals this will be 1% 3% and 5% (including tax relief so in effect in Year 1 individuals contribute zero). For the employer the phasing will be 1%,2% and 3%.

The concept was originally invented by the Pensions Commission, and documented in their Second Report, published in November 2006, under the title of National Pensions Savings Scheme.This is generally thought of as one of the leading reports into pensions in the world. As the Government have taken the idea forward to delivery, they have changed the name to Personal Accounts.

The Pensions Act 2007 established a non departmental public body called the Personal Accounts Delivery Authority (PADA) to oversee the implementation and launch of Personal Accounts. Once completed, the delivery authority will hand over the day-day running and strategic management of the personal ccounts scheme to the trustee corporation created by PADA.

The first Chairman is Paul Myners. and the current chief executive is Tim Jones.

This bill looks to be receiving full support from all sides of the house and is scheduled to get royal assent in July 2008.

ee also

*UK pension provision
*Basic state pension

External links

* [http://www.dwp.gov.uk/pensionsreform/new_way.asp Department of Work and Pensions] - UK Government website containing details of the public consultation on the formation of Personal Accounts.

http://www.dwp.gov.uk/pensionsreform/pdfs/PensionsBillImpactAssessmentDec07.pdf - this is the impact assessment released in December 2007 for the Pension Bill 2008. It provides a complete appraisal of the reforms. there are also factsheets on individuals and employer reactions which have implications for the UK pension industry.

* [http://www.pensionspolicyinstitute.org.uk Pensions Policy Institute] - publishing independent non-political research into UK pensions policy.

* [http://www.ampsonline.co.uk Association of Member-Directed Pension Schemes (AMPS)] - The principal body for discussing changes involving self administered pension schemes