Govt lowers cap on personal accounts

Hutton confirms personal account details

Thursday, 14, Jun 2007 12:00

The government announced today employees will be able to contribute a maximum of £3,600 to the new personal account scheme.

In last year's white paper, the government was considering an annual cap of £5,000, winning approval from the consumer group Which? and the Trade Union Congress.

The reduced cap has been seen as a victory for the pensions industry and the entire package, revealed today by pensions secretary John Hutton, has been welcomed by the National Association of Pension Funds (NAPF).

The government says a £3,600 cap will encourage low paid workers to contribute to the scheme.

Minister for pension reform James Purnell said: "We believe setting a cap at this level will allow personal accounts to remain focused on our target group of moderate to low earners who currently do not have access to a good pension."

However, the government has been criticised for giving too many concessions to the pensions industry.

Lib Dem pensions spokesman David Laws said the government had prioritised the interests of pension providers ahead of savers.

He said: "It is essential that people who use personal accounts are able to save enough to secure a decent income in retirement.

"The cap on contributions must be set at a level which allows people to save up to two thirds of their income - the level that people say they want."

Mr Laws continued: "The government should be doing much more to allow people to roll existing small pension pots into their personal accounts, to make saving simpler and more cost effective.

"Instead of selling out to lobbying from producer interests, the government should boost good quality pensions through better regulation and fairer taxation."

The NAPF welcomed the decision, however, insisting it was important the government supported existing pensions rather than seeking to replace them.

Chief executive Joanne Segars: "Ensuring that the millions of people already saving in good quality schemes can continue to enjoy those pensions is just as important as the introduction of personal accounts."

Mr Hutton said the new personal accounts system would give all employees the right to a workplace pension, topped up pound-for-pound with contributions from employers and the government.

The pensions secretary said the government believed Britons would be far more likely to save if given access to low-cost pension schemes, with a contribution from their employer.

The government hopes six to ten million people a year will be saving with a personal account from 2012.

Government research published today found only a third of employees have a private pensions while 29 per cent prioritise spending today over saving for tomorrow.