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‘Uncertainty’ over personal accounts pensions

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The low profile given to plans for the introduction of personal accounts pensions, the government-backed workplace savings scheme, in the pre-Budget Report has created an element of confusion, the Commons Treasury Select Committee has heard.

Addressing the select committee, John Whiting, tax policy director at the Chartered Institute of Taxation (CIOT), argued that the issue of personal accounts pensions had been “pressed down” in the Report.

The emphasis granted anti-forestalling measures on tax relief for pension contributions by higher earners had tended to overshadow details for the government’s scheme to boost the number of people saving for their retirements through the new workplace scheme.

Mr Whiting added that it appears the government has opted to extend implementation of the scheme by a year but that the specifics were not clear.

John McFall, chairman of the committee, conceded there was confusion over the matter and would press for greater clarity.

Tim Jones, who is chief executive of the Personal Accounts Delivery Authority (PADA), said that the scheme would still be launched in 2012 but admitted that “details of how the duties will be implemented” will be subject to some adjustment and that more information will be released early next year.

Personal accounts are designed to encourage workers on lower incomes to invest in pension funds.

As from 2012 – a starting date confirmed by Mr Jones – employers will be required to enrol staff automatically in the personal accounts scheme provided the employees concerned are not already members of a workplace pension.

Employees who do not want to take part will need to opt out.

Originally, employers would have contributed 1 per cent of earnings, employees 1 per cent and the government a further 1 per cent.

The modesty of ambition, however, later saw those figures rising to a total contribution of 8 per cent of earnings by 2015, with employers adding 3 per cent and employees 5 per cent, the sums offset by tax relief.

Last September, the date for the scheme’s full implementation was extended by a year to 2016. To help smaller employers, only the largest firms were expected to introduce the scheme as early as 2012.

Now it appears the Chancellor has decided to push the phasing-in date back to 2017, in order to give small firms more breathing space in which to prepare for the personal accounts scheme, before the full 8 per cent contributions come into effect.

The concern is that the additional delay will reduce the pension fund available for each employee by about 5 per cent or £300 in annual retirement income for someone on £25,000 a year.