Personal Accounts: Personal Account Pensions Review

At PersonalAccounts.info we believe that even now, without the full details of personal accounts, employers will fall into one of two broad categories; those who pay into a pension plan and want to know how this will impact on them, and those who do not currently offer employees a pension and who will want to know their options.

Employers with an existing pension arrangement

If you currently pay into a pension scheme, you will want to know if your scheme is "good enough" to allow you to effectively ignore personal accounts legislation and to largely carry on as you do currently. In order to establish this it is expected that some sort of scheme exemption test will be created. Employers who pass this will probably only have to make small changes if any, for example they may have to introduce an auto enrollment facility. The exact format of any such test is yet to be clarified but it is likely to include the following:

• Are employer contributions 3% or more of employee earnings (this may be total earnings and not band earnings)?
• Do emplyees currently pay 4% or more into the arrangement?
• What will the investment choices be?
• How will opt out be catered for?
• Is the current reporting system compliant

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Employers without existing pension arrangements

If you do not pay into a pension scheme, the plain fact is that you will have to start in 2012, and by 2014 you will be paying 3% of band earnings. Proactive employers may want to discuss planning for this cost and discuss ways to gain value from an expense that will have to be met.

For example, if you were already thinking of introducing a pension scheme for the purposes of staff recruitment and retention, will the personal accounts proposal meet your goals of being better than the competition? or will compliance just make you legal.

Issues you may consider are:

• Why do you wish to offer a contributory pension scheme, and what you hope to gain from it.
• Do you want professional advice from a financial adviser to help your staff understand the benefits
• What are the charges
• What are the investment options, How many funds etc
• Is on-line access important
• What admin can you cope with in-house, what would you prefer to outsource.

It may be that as a result of these issues, you decide that you would like to implement a scheme which is exempt from the personal account pension legislation. The details of what will make a scheme exempt have not been finalised, however, current thinking is that one issue will be that contributions will need to be 8% of total earnings, not just salary, which is a very big difference.

This situation is fluid, and is likely to change between now and when the policy is finally implements. Please subsribe to our newsletter, or check back for updates on the situation.

This site will report further details as and when they are known. If you would like to know more about your options now please take advantage of our FREE analysis by registering here