Pensions Reform: Personal
Pension Accounts
Personal Accounts
Personal accounts are the Government's
Big Idea. They are extremely concerned by how many
people do not have adequate pension arrangements in place
and have designed the personal account pension savings system
to deal with this problem.
What Are They?
Personal accounts are effectively low-cost
private
pensions for people without workplace pensions. Their
main features are:
Personal account pensions will be targeted
specifically at people aged 22-65, earning over £5,000
per year and who are not participating in a pension scheme
including at least a 3% employer contribution.
The government estimates that 10 million people
currently fall into this category.
How Do Personal Accounts Work?
From 2012, all employees not in a suitable
workplace
pension will be automatically-enrolled in a personal
account.
You can opt out if you want
to, but the government has chosen to make enrolment automatic
to encourage more people to use the new system.
You will be required to contribute a minimum
of 4% of your earnings - which will be matched by your employer
- making a total of 8% each year.
You can contribute more if
you want, up to a yearly contribution cap (limit) of £3,600.
This limit will increase in line with earnings each year,
so should effectively remain constant.
The government's target is for the annual
fees / charges for the personal account to be no more than
0.3% of the amount in each person's account. This is a
lot cheaper than a typical private pension, which
charges 1.5% in fees each year.
The personal account system will be centrally-administered
by an independent board who will decide how the funds are
invested and so on. Although you won't have the same range
of choices as with a private pension, the lower fees and
greater simplicity should make the system more useful and
accessible, especially to people on lower incomes.
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