The government has published its white paper on personal accounts, the pension saving solution mooted in the general white paper on pension reform.

Under the proposals up to 10 million people will automatically be enrolled into personal accounts, with a guaranteed employer contribution of at least three percent.

The government estimates that the millions of people who will save into personal accounts will contribute around £8 billion annually in savings.

Secretary of state for work and pensions John Hutton said: “From 2012, employers will automatically enrol their employees into personal accounts or into their own existing occupational pension scheme, as long at it meets the specified minimum standards.

“This simple but radical step will affect around 10 million employees in Britain, and will be vital in overcoming the barriers that prevent many people from making the decision to save.

“Low charges are critical to ensuring that people build up the maximum pension fund from their savings. The Government estimates that the long-term costs for personal accounts will be in line with those set out by the Pensions Commission of around 0.3 per cent of funds under management, or even lower.

“These reforms set a sustainable and sensible course. They are in the long-term interests not only of this generation, but of generations to come.”

The white paper also reveals that the government has decided the NPSS model proposed by the Pensions Commission is the best way to deliver personal accounts. The proposals are set around the following key issues:

• Simplicity: It will be simpler for savers – they will not be forced to make choices about who administers their fund, or where their money is invested




• Low-cost: NPSS model is cheaper – the government is confident that using the NPSS model, as outlined by the Pensions Commission, will mean employees keeping up to 25 per cent more of their pension pot compared with other models

The government adds that the establishment of a delivery authority, included in the recent pensions bill, will serve as a central point for decisions. This will bring in the expertise needed to set up the personal accounts scheme, but through a body which will be tasked to make key decisions in the best interests of members.

Mr Hutton continued: “These reforms are designed to fill a gap in the existing market – we want them to complement the existing market not compete with it.

“So, alongside the creation of the new personal accounts, we will take action to support existing pension provision.

“There will be no transfers into or out of personal accounts from or to existing pension schemes. And an annual limit will restrict the level of contributions an individual can put into their account.

“This will be £10,000 in the first year – to allow individuals currently without access to a good quality occupational pension to save in other, non-pension, products before 2012 and then to move them to personal accounts. A limit of £5000 will be established for subsequent years and we propose that this arrangement is reviewed in 2020.”

The TUC has warmly welcomed the white paper, describing it as “an important building block”.

TUC general secretary Brendan Barber said: “Compulsory employer contributions are a major gain for people at work.

“In particular, we welcome the government’s rejection of employer lobbying for a waiting period before employees can join or rejoin the scheme in each new job. The government is also right to hold fast to a default low-cost scheme and reject the pensions industry’s campaign to introduce a ‘battle of the brands’ that could only confuse savers and raise costs.

“And while it is right to examine the position of the low paid, critics of the new scheme fail to see that most employees would rather build up their own pension pot, rather than rely on the future vagaries of state pension benefits. Personal accounts also ensure that all employers play their part in pension provision.

“Our one disappointment is that the administration of the new scheme will take place in the private sector, even though the public sector already has experts collecting contributions from employees and employers in the shape of Her Majesty’s Revenue and Customs.”

The CBI welcomed the white paper with the proviso that the government should keep its pledges to help firms implement the proposals.

John Cridland, CBI deputy director-general, said: “Business has long supported a system of low cost, personal accounts for people without an existing occupational scheme. If properly implemented, these proposals will boost pension participation rate for many millions of people currently not saving for their retirement.

“But without a package of support measures employers with existing schemes might be tempted to cut their contributions to contain the extra expense; and firms without will see growth and employment affected.

“Fixing employer contributions at three per cent of wages will offer some reassurance to business that it will not be ratcheted up under pressure from the trades unions, and a three year phasing-in period could also help many employers manage the change.”