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A new incentive to save

December 14th 2009

Consequently, the Government has decided it’s time to try and persuade more individuals to start saving towards a private pension. Their latest measure is 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, but by doing this 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, earning between £5,035 and £33,500 and aged from just 22 right up to state-pension age. The employee must contribute a minimum of 4% of their earnings to the scheme, meaning that 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 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 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 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 for 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.
 
If you are an employer and would like to speak to one of our advisers regarding the proposed 2012 Pension changes please give us a call on 0113 287 8200 or e-mail advice@prosperis.co.uk