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Tim Jones

Personal account pensions 'absolutely on track' for 2012

By Edward Lander | 08:37:31 | 28 October 2009

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As chief executive of the authority in charge of rolling out the national Personal Accounts pension scheme Tim Jones faces the prospect of working on a scheme that may never see the light of day if the Conservatives drop the project should they win the election.

The Personal Accounts Delivery Authority, or Pada, is stuck in limbo after the Tories' angry response to the government’s delay in introducing full auto-enrolment was to announce they would put personal accounts under review if they came to power.

News that ATP, one of four firms pitching to administer personal accounts, had pulled out of the running for the contract has only added to the uncertainty over personal accounts and the body responsible for implementing them.

Unfazed

But Jones is not perturbed, even though he accepts some of the blame for the disappointment caused by full auto-enrolment being pushed back from 2012 to 2016. He said: ‘Nobody was more surprised than me to see the announcement of the staged schedule greeted as a delay.

‘I think there’s every likelihood that this programme will continue because I think it makes a lot of sense and I think it’s easier to see that from the inside because of the kind of evidence gathered,’ he said, adding that the current version of personal accounts is ‘a great settlement’ and the best solution considering all its industry, scheme members and employer stakeholders.

Jones may have good reason to be optimistic about the future for personal accounts. Should the Conservatives win the next election, their plans for a swift review of personal accounts would give them only a small window of opportunity to develop an alternative.

As for the possibility of a privately run replacement for personal accounts, Jones said life insurance companies were not interested in administering them when the tender went out, and none of the companies the Conservatives had approached had expressed any interest in what risks being an uneconomical project.

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Comments (3)

Citizen of Utopia - A working system

16:49 | 28 Oct 2009

This is how it works in a reasonable European country I know of:

As soon as you start work you get compulsory enrolled in a national scheme that runs until you reach your pensionable age. A set % of your gross salary goes into the account automatically (this effectively includes your tax relief as deducted pre-tax), each employer is by law compelled to match this contribution to a pre-set % - it's part of the employment law, no exceptions. You cannot employ people as permanent staff without offering this as employement condition. Yes, it is an overhead on businesses but it is just a business expense and offsettable against tax. This continues thoughout your working life. When you retire - there is a formula that calculates what you are entitled to as pension - which is a certain % of your salary in every year of your working life. This gets calculated for every year, added together and then you get an average which is your pension. The state pays it to you until you die from the moment you reach the retirement age and have a pre-set minimum number of years worked. If you are a few years short you can elect to work longer to make it up or you can take your pension but reduced by a factor depending of how many years you are short. The system is harsh but fair. There is no 'lump sum' payable on retirement but the % of your working income that you then get as pension is decent. Forget the puny 5-7% annuities (if you're lucky and subject to market mercy at the point of retirement!). Most retire on about 60% of their salary as an average taken throughout their woking life. So if they earned 10K for 25 years, and 100K for 5 - they won't get 60% of 100K but it will be apportioned appropriately. That way most people get something, and it is directly proportional to what they have paid in. If you don't work, you don't get enrolled in the pension scheme and do not accumulate the state pension. There are special provisions for people taking a career break to bring up children or who do proven voluntary work up to a certain number of years. Otherwise you either live of independent means or on benefits. In both cases - once you reach retirement age - you are assessed for means tested pension benefits on the basis of the current income you have. If you qualify (i.e. your income is nil or below a set minimum level - you get pension benefits, if not - you don't). If you have a state pension but the income from it is so small that it still puts you below the minimum level (a fear of many low-income people here) - you get a 'means tested top up' to bring your income up to the minimum. It's quite fair what you get and state benefits are only paid to those who really need them, nobody can 'elect' to be poor in retirement because they decided that they cannot afford or couldn't be bothered to save or would rather blow the money on tvs or holidays and then expect the society to pay for their retirement. The most important thing is this: IT NEVER MAKES MORE SENSE NOT TOO WORK THAN TO WORK AND YOU ARE NEVER BETTER OFF BY DOING SO in that place and I think it is only fair and pre-empts a lot of abuse in the welfare system. Everybody who's working and earning is made to save something towards their retirement. Yes, some people are on low incomes and poor in their working life and could really do with the extra cash that is deducted from their salary as pension throughout but since it is a gross deduction - they learn not to treat this as income. If they are in hardship there is state assistance or people take second jobs to supplement their income. And they get the added benefit of the emplyoer matching their contributions. No one moans that they have to save for a pension. They are happy and grateful that it's there. Why can't we have something similar here? Scrap the 'pension' part of NI contributions and make NI health related only. Incidentally there is also a national health service in the country in question and again everyone pays the NI towards it as a direct salary deduction - pretty much as they do here.

Make the pension state guaranteed - make all employers and the employees contribute equally to it and let the state help by providing suitable tax relief to both. Simple, transparent and fair.

John

23:34 | 28 Oct 2009

Utopia

That sounds like a good scheme.. I hope it is not too good to be true..

The British scheme is merely enforced savings. Nobody knows whether it will produce a decent pension. It depends on invstment performance, life expectancy, timing and annuity rates.

It is limited by stupid rules, and does not even comply with World Bank guidelines as introduced in Chile twenty or so years ago.

In all it is enforced gambling and probably a lot of effort to achieve very little.

In conclusion it should be scrapped before it starts.

Grapevine - Defined Benefit Alternative to PA

09:59 | 29 Oct 2009

Re Utopia:Compulsory membership does away with the current PA means-testing issue as there is no option to opt out, and therfore no decision to be got wrong.

A defined benefit system is vastly superior to an equity investment, Annuity rate dependant system for the lowest levels of remunerated employees, the target market for PAs after all.

There is already a well established precedent for a revalued average pay scheme, that is the system that has operated for 60 years for GPs and Dentists, albeit at a higher percentage of contribution and eventual pension than would probably apply to such a sceme; for GPs IIRC it was Approx 1.6% of revalued pay @60 for around 20% total contribution.

A scheme offering a revalued 1% of average ( NOT final) pay after 50 years ( 18-68) would provide 1/2 average pay at 68 and might cost of the order of 10-12% combined contribution.

This would transfer the investment risk from the individual to the State, but if you are talking about individuals currently earning £12K-£30K pa that might be sensible.

Those who are implaccably opposed to state provided index linked pensions won't like the idea much; but in my opinion equity based schemes for the lower paid are not the answer.

Most readers here will / would have been be in a higher income bracket and of course will be able to make their own choices about savings from income above the threshold.

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