15 December 2006
Work and Pensions Secretary John Hutton this week published full details of the National Pension Savings Scheme, claiming that it could help up to ten million people save for retirement.
As part of Hutton's Personal Accounts white paper proposals, published on December 12, workers without current access to an occupational pension scheme will be automatically enrolled into the low-cost NPSS from 2012, with an option to withdraw.
Hutton hopes the scheme will kick-start a new savings culture after the government's Pension Commission estimated that up to eleven million people in the UK are not saving enough for their retirement.
'This simple but radical step will affect around ten million employees in Britain, and will be vital in overcoming the barriers that prevent many people from saving,' Hutton claimed.
The public delivery authority that will oversee the NPSS will operate at arm's length of the Department for Work and Pensions and will develop through three phases before co-ordinating how savings cash is used by private fund managers.
Employees will pay 4% of their salary into personal accounts, with employers compelled to contribute 3% and further 1% offered by the government through tax relief. Ministers expect around £8bn to be saved through the scheme annually.
Hutton this week capped the amount that employees could pay into their personal account at £10,000 for the first year, followed by £5,000 for subsequent years. The arrangement will be reviewed in 2020.
Administration of the accounts will be outsourced to private firms, which will also manage the funds in which the cash is invested.
Although he approved of the plan for the NPSS, Trades Union Congress general secretary Brendan Barber said. 'Our disappointment is that the administration of the new scheme will take place in the private sector, even though the public sector already has experts in collecting contributions from employees and employers in the shape of the Revenue and Customs department.'
The personal accounts plan forms part of a wider pensions shake-up, including increasing the state pension age to 68 from 2046.
Prime Minister Tony Blair said: 'These reforms are challenging and difficult, this is setting out a reform process for the next half a century.
'But…if we want to be able to afford decent state pensions in the future and we want to ensure that people in increasing numbers aren't pushed onto means-tested benefits then we have to make long-term reforms.'
PFdec2006