Personal Accounts: Key Facts

The final details of the structure of Personal Accounts are still being finalised. At the time of writing the key facts are as follows:-

• Personal Accounts will be introduced in April 2012 as a "new way to save". They will effectively be personal pensions, run on a occupational basis and administered by employers.
  
  
• All employees will be automatically enrolled into a personal account as long as they are aged between 22 and the state pension age; they earn more than the Primary Threshold (£5,225 per annum in 2007/8); their employer does not already offer a pension scheme with benefits equal to or greater than a personal account.

• There are likely to be several investment funds to choose from (including environmental and ethical options), as well as a default fund for those not wanting to make a choice. Once an individual has begun a personal account, it will stay with them throughout their career, regardless of when they change employers.

• The aim will be to accrue a fund which will provide an income in retirement. As with traditional money purchase pensions the policyholder will not be able to access the funds before age 55 when there will also be an option to take 25% of the fund as tax free cash.

• The Government is naturally keen to maximise the benefits to members, and therefore wants charges to be kept to a minimum – ideally below 0.3%.

• As far the contributions are concerned, the Government intends for employees to pay 4% of their earnings, employers 3%, while at the same time contributing an extra 1% itself via basic rate tax relief. This 8% minimum contribution will be phased in over a three year period (for example in 2012, employers will only have to pay in 1%).

The Government is currently considering ways to reduce the impact on existing pension provision, including limiting the maximum that can be paid into personal accounts to £5,000 per annum (£10,000 in the first year) and banning transfers into, or out of, personal accounts. The Government has established the Personal Accounts Delivery Authority (PADA) to oversee the introduction and a Personal Accounts Board with independent trustees to oversee them once they are up and running. Whether they will be regulated by the Pensions Regulator or the Financial Services Authority is still a matter of dispute.