Personal Accounts

The Government plans to bring in Personal Accounts from April 2012, in an attempt to increase the population’s income in retirement.

All employees aged between 22 and State Pension age, earning more than £5,035 per annum, will automatically be included into a Personal Account or into a Private Pension offering at least the same contribution levels.

Employees younger than 22 or older than State Pension age can opt in and all other employees will have the option of opting out of joining the scheme.

Employers will be required to make a minimum contribution of 3% of pay, with a minimum employee contribution of 4% and 1% from the Government in the form of tax relief, subject to a maximum of £10,000 in the first year and £5,000 per annum thereafter.

Current regulations dictate that all employers employing 5 or more staff must run a Stakeholder Scheme, however after April 2012 all employers regardless of size must pay into Personal Accounts for their employees. Self employed individuals can opt into Personal Accounts if they wish and can pay any contribution required subject to the above maximums.

The Government believes that an annual management charge of 0.3% or equivalent should be achievable in the long term, which is far lower than the maximum charge of 1% per annum for Stakeholder Pensions. Transfers between Personal Accounts and other schemes will not be allowed, although this will be reviewed by the Government between 2017 and 2020.

Personal Accounts will be a nationalised Pension Scheme and contracts will be awarded to one or more private sector companies to administer the scheme.

Any employer contravening the employer duties can be subject to a fixed penalty notice of up to £50,000 and an escalating penalty notice of £10,000 per day, until the breaches are rectified. In addition there are provisions in place whereby it is an offence for an employer not to comply with the requirements to automatically enrol eligible employees into the scheme, which can be punishable with up to 2 years imprisonment, fine or both.

It should be noted that the above details are subject to change prior to implementation in April 2012.

The above should be considered as general information and not specific advice. This article is subject to Gracechurch Financial Services Ltd's understanding of current legislation, which may change in the future.

Gracechurch Financial Services Ltd is authorised and regulated by the Financial Services Authority.