27/7/2007 - Pensions Act — Personal Accounts
The Pensions Act 2007 also makes provision for the new Personal Accounts system, following the White Paper "Personal accounts: a new way to save" published in December 2006.
The Government´s objective is to provide a high-quality, low-cost savings vehicle for all, which should increase the amount of money people are saving for retirement while reducing reliance on the State.
The scheme, which is to be introduced from 2012, will have the following key features:
Automatic Enrolment
One of the main features of Personal Accounts will be automatic enrolment. Employees aged 22 or over and under State Pension Age who are earning more than £5,000 per annum will be automatically enrolled unless exempt. Employees automatically enrolled into a work-based pension schemes may be exempt from being automatically enrolled into a Personal Account, provided that the work-based scheme meets the minimum requirements for Personal Accounts.
Individuals below the age of 22 will not be automatically enrolled but will be able to opt to join provided they earn above £5,000 per annum. The self-employed and individuals not in employment will be able to opt in voluntarily but clearly will not be eligible to receive an employer contribution.
Contributions and Transfers
The employee contribution will be a minimum of 4%, plus an additional 1% in the form of normal tax relief. Contributions will be based on a Personal Accounts Earnings Band (PAEB) on salary between £5,000 and £33,500. This salary banding will rise annually in line with earnings. Employers will be expected to pay contributions of 3% of employees´ earnings within the PAEB. The contribution rate will be set out in primary legislation to create stability.
Transfers into or out of Personal Accounts will be prohibited initially to maintain stability. However, this policy will be reviewed in 2020.
Contributions to Personal Accounts will be subject to a maximum of £5,000 per annum after the initial first year and this will be reviewed in 2020. In the first year that Personal Accounts are available, however, the maximum contribution will be £10,000 to allow members to deposit savings they have built up before 2012.
Management of Personal Accounts
The Government is committed to ensuring that the management of the fund is independent and will therefore use private sector resources to run the scheme. The Pensions Act establishes a Delivery Authority to assist the Government in the design of Personal Accounts. The Delivery Authority will be given executive powers including negotiation of contracts, investment strategies and communications. In due course, a Personal Accounts Board will assume the responsibility for the management of the new scheme and its future development. The Board will be accountable to Parliament.
