Magazine article Public Finance

This Time It's Personal

Magazine article Public Finance

This Time It's Personal

Article excerpt

Over the past few years there has been a wide-ranging debate about what should be done to stem the decline in pension coverage in the UK, both state and private.

Those who have been following this debate closely will know that from 2012 there will be a new regime for pension saving, which was announced in the Queen's Speech this week.

Following the recommendations of Lord Turner's Pensions Commission, the government is set to introduce a new national pensions scheme with mandatory employer contributions, tax relief and automatic enrolment. It will be known as the Personal Accounts scheme.

A wide consensus was achieved on the broad principles of reform and a Pensions Bill will be introduced this month. This is expected to include the detailed provisions on Personal Accounts, and the regime that will surround it. The National Association of Pension Funds has been closely involved in discussions on the system.

Those who haven't been following the debate so closely might be wondering why the government is going to the trouble of establishing a new system.

Ministers have estimated that around 7 million people are not saving enough for their retirement. They believe the existing pension market has not provided the right products for these individuals, many of whom come from low-income households. They hold that inertia and a short-term outlook, combined with the difficulty of making the right choice, stop some people from making any choice at all.

To tackle these problems and prevent future generations from retiring in poverty, the decision was taken to introduce radical reforms: first, by providing a simpler, more generous, state pension and, second, by establishing Personal Accounts.

Last autumn, the government introduced a Bill to enact the changes needed to the state pension system. These included a reduction in the number of qualifying years required to gain a full Basic State Pension; the restoration of the link between increases in national average earnings and the BSP (date of restoration to be confirmed nearer the time), reforms to the credit system for carers; and increases to the state pension age.

The Pensions Act 2007 also paved the way for the new Personal Accounts scheme by establishing the Personal Accounts Delivery Authority to act as an advisory body on the details. Paul Myners has been appointed chair of the PADA and work is progressing.

From 2012, employers will have to enrol all eligible employees into either a Personal Account or an employer-sponsored scheme, though staff will have the right to opt out. …

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