Personal Accounts pose threat to existing pension schemes

by Gill Montia

Story link: Personal Accounts pose threat to existing pension schemes

Pension experts are continuing to express concerns over the Government’s plans to reform the private pension system.

According to investment firm, Fidelity International, the introduction of Personal Accounts in 2012 could mean that a large numbers of employees lose their existing schemes.

Personal Accounts are seen by the Government as a means of avoiding a looming pension crisis.

Under the current proposals, from 2012, workers not in occupational pension schemes will be enrolled in them, unless they opt out.

Staff will pay 4% of their salaries into their account and employers 3%, with an extra 1% from the government in tax relief.

However, many pension advisers and providers fear that employers will “level down” existing occupational pension schemes to the new contribution levels.

In addition, lower wage-earners saving in Personal Accounts may lose out on means-tested benefits.

According to Fidelity, around 7% of 100 finance directors from some of the UK’s largest companies have admitted they would close existing schemes and replace them with Personal Accounts once the scheme is introduced.

Based on this response, around 300,000 people could lose their current company pension.

Eleven percent of employers questioned said they would keep existing employees in current company schemes but new joiners would only be offered Personal Accounts.

Simon Fraser, president of the investment solutions group at Fidelity International, says: “The government’s original intention for personal accounts was to ‘complement rather than compete’ with existing provision, but our findings reveal that this will not be the case.”