Personal Accounts: Foreword

Our White Paper, Security in retirement: towards a new pensions system, set out a new structure for the long-term future of pensions in the UK. A simpler and more generous State Pension paid for by a higher State Pension age that will ensure the system remains affordable and provide a solid foundation on which to save. More generous qualifying rules will, for the first time, properly recognise the social contributions people make – and in doing so deliver fairer outcomes, especially for women and carers. And, crucially, a new system of personal accounts that will give future savers an unprecedented opportunity to take personal responsibility for building private savings.

We estimate that around 7 million people are not saving enough for their retirement. Many are from low-income households and have been poorly served by existing pension products. Inertia and short-termism – combined with the difficulty of making the right choice – stop people from making any choice at all, while pension providers find they cannot profitably supply what is needed.

The proposals in this White Paper seek to put this right. Combined with mandatory matching employer contributions, tax relief and automatic enrolment, the new personal accounts will radically improve access to affordable, low-cost pension saving for many on moderate to low incomes who do not currently save in a private pension.

Our goal is to give people a good expectation that if they contribute to the state system for most of their career, they will be better off for having saved. Between 6 and 10 million people could eventually save into personal accounts. By retirement their pension funds could be worth up to around 25 per cent more because of lower charges – and could generate an additional £4–5 billion of new saving, equivalent to around half a per cent of GDP.

I am grateful to everyone who has contributed to the consultation process over the period since May. The proposals in this White Paper are ambitious – rightly, because the challenges we face are pressing and substantial. But we believe that personal accounts can help us meet these challenges and in doing so, embed a new pensions savings culture at the heart of a sustainable, affordable and trusted pensions settlement.

The Rt Hon John Hutton MP