Pension reform

dunstonh

So use it only to possibly get a cheap (and hopefully not bad) FTSE tracker or opt out and out-grow any lost matching funds, which seems likely to happen within 10-15 years.

Opt in to get the free money from the employer but dont pay any extra. Then use pensions/ISAs to invest in the areas not covered by the Pers A/c

Are there going to be restrictions on running a 'Personal Account' and a normal pension fund at the same time?

Pensions will continue although it is expected the stakeholder rules will be removed for new business.

The big difference at the moment is that there appears to be no 25% lump sum benefit on personal accouts but is on pensions.

Specifically I have 2 jobs, a full time one where my employer contributes a matched 5%, and a part time one where there is no pension currently. I can see the part time boss being forced to start one of these up; as things stand at the moment, will there be any conflict?

Seen nothing about 2 jobs yet. The personal account will not be run by the employer. It will be a central system under your NI number and probably collected in a similar way. So you will "probably" be paying on both incomes with no conflict.

The amount of business is such that it could be worth the fund managers putting in quite a bit of effort. The smallish volume of the UK market is one reason why prices are so high compared with the US.

High volume but low fund values. That usually indicates greater expense.

jamesd

"If employee opts out, they are re-enrolled after 3 years" Section 1.11, Figure 1.4. And there's a fast-track system to opt them back in quickly and automatically if they change job. Seems you'll need to be alert to stay opted out.

"Assumes a total contribution rate of 8 per cent, and nominal pension fund growth of 6.47 per cent a year (3.5 per cent real)." Section 4.4. Not a really encouraging return.

"For those who do not make an annuity decision by the age of 75, it will be necessary for annuities to be purchased on behalf of individuals." 5.21

In 6.22 and following sections there is a discussion of how to allow Stakeholder and group personal pension schemes to count as schemes and avoid auto-enrollment in the central scheme. European law requiring consent to opt in is given as an obstacle to this.

"We think that there is a strong case for prohibiting transfers between personal accounts and other pension products and schemes. .. We propose that the personal accounts board should review these arrangements in 2020 to assess the market impact of the reforms and to see whether this prohibition remains appropriate." 7.15 and 7.19 ie. opt out immediately on every job change, then decide at your leisure, or your money will be stuck in this scheme. If you opt out immediately every time, you can use the normal rules to make the contributions wherever you wish during that year.

"We therefore propose that personal accounts should have an annual contribution limit of at least £5,000 ... we are proposing that in the first year of personal accounts the contribution limit is set at £10,000. This approach will help any individual who may want to move their accumulated funds up to this limit from non-pensions savings products into personal accounts". 7.25, 7.26. But nobody who reads this place is likely to want to transfer from an ISA to this...

"We see no case for withdrawing stakeholder pensions and restricting the choice available in the pensions market. ... provisions require most employers with five or more employees to select a stakeholder pension scheme, consult their workforce about the choice, and formally designate a scheme as the one to which the company will give its workers access. ... We therefore plan to remove these requirements when personal accounts are introduced". 7.30, 7.31, 7.32

"The consultation period began on 12 December 2006 and will run until 20 March 2007. e-mail: personalaccounts-wp@dwp.gsi.gov.uk" Here's your chance...

Source: Personal accounts: a new way to save. More at Pensions Reform.

jamesd

dunstonh wrote:

The big difference at the moment is that there appears to be no 25% lump sum benefit on personal accouts but is on pensions.

See 5.17: "personal accounts will be subject to the same decumulation rules as other pension schemes:

• pension income cannot be accessed before the age of 55 and income must be secured by the age of 75;
• up to 25 per cent of a pension fund can be taken as a tax-free lump sum;
• individuals who have accumulated small pension funds are not required to secure a pension income and can take their pension as a taxable lump sum; and
• if an individual dies before reaching age 75 without accessing their savings,a further pension or lump sum will be payable to their dependants."

dunstonh

Thanks for that update. It wasnt in the first draft. At least that is one positive move.

Paul_Herring

dunstonh wrote:

Paul_Herring wrote:

Specifically I have 2 jobs, a full time one where my employer contributes a matched 5%, and a part time one where there is no pension currently. I can see the part time boss being forced to start one of these up; as things stand at the moment, will there be any conflict?

Seen nothing about 2 jobs yet. The personal account will not be run by the employer. It will be a central system under your NI number and probably collected in a similar way. So you will "probably" be paying on both incomes with no conflict.

OK - so moving on slightly - my main job's pension gets a 22% rebate of my contributions into the fund, with another 18% where applicable refunded on the tax return, and there's another 1% of any other wages to go into the Personal Account - I'm hoping they have/are taking this into consideration when drawing up the documentation....