Pension Personal Accounts - Government published response to consultation

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In December 2006, the Department for Work and Pensions published the consultation document Personal accounts: a new way to save, which explained how a new employment-based pension savings scheme would operate from 2012. Details of the scheme were provided in one of our news items last December.

The Government has now published its response to the views received from the consultation. The decisions that have been made on the key questions posed by the consultation are:

• There is no change to the automatic enrollment of employees between age 22 and state pension age. Those approaching retirement may opt out if they wish or, if their accumulated pension funds amount to less than 1% of the lifetime limit (£16,000 in 2007/08), they will be able to take these savings as a lump sum, 25% of which may­be taken tax free.
  
  
• Automatic re-enrolment for those who have opted out (but with the option to opt out again) will not occur more frequently than every three years.
  
  
• Enrolment will occur immediately on starting a new job.
  
  
• The earnings band within which enrolment will be automatic will be between the earnings threshold and the upper earnings limit, and those limits will be increased in line with earnings rather than inflation. However, the 2007 Budget proposal to increase the upper earnings limit by 2009 will not apply to the Personal Accounts upper limit.
  
  
• The definition of job holders for whom enrolment will be automatic will be the same as for "workers" under the provisions of the Working Time Regulations and the National Minimum Wage Regulations.
  
  
• The default contribution will be phased in over three years, at 1%, 3% and 5%, including tax relief, with employer contributions of 1%, 2% and 3%.
  
  
• There will be an annual contribution limit of £3,600 (at 2005 levels) for scheme members' contributions.

These are only a few of the many issues discussed in the response document. Other subjects include the delivery method for Personal Accounts, charges and financing, compliance and transfers to and from existing employer pension schemes.

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Further information:
Personal Accounts: a new way to save - Summary of responses to the consultation

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