Workers to have access to good quality occupational pensions

Millions of workers are to be given an easy way to save for their future - complete with an employer contribution and tax relief - under new proposals published today in the Government's White Paper, Personal accounts: a new way to save.

Up to 10 million people will be automatically enrolled into personal accounts, with a guaranteed employer contribution of at least three per cent, kick-starting a new savings culture in the UK. The Government expects that the millions of people who will save into personal accounts will contribute around £8 billion annually in savings.

Secretary of State for Work and Pensions John Hutton said: "From 2012, employers will automatically enrol their employees into personal accounts or into their own existing occupational pension scheme, as long at it meets the specified minimum standards. This simple but radical step will affect around 10 million employees in Britain, and will be vital in overcoming the barriers that prevent many people from making the decision to save.

"Low charges are critical to ensuring that people build up the maximum pension fund from their savings. The Government estimates that the long-term costs for personal accounts will be in line with those set out by the Pensions Commission of around 0.3% of funds under management, or even lower.

"These reforms set a sustainable and sensible course. They are in the long term interests not only of this generation, but of generations to come."

The White Paper also reveals that the Government has decided the NPSS model proposed by the Pensions Commission is the best way to deliver personal accounts. The proposals are set around the following key issues:

Simplicity - It will be simpler for savers - they will not be forced to make choices about who administers their fund, or where their money is invested.

Low-cost - NPSS model is cheaper - The Government is confident that using the NPSS model as outlined by the Pensions Commission, will mean employees keeping up to 25 per cent more of their pension pot compared with other models.

In addition the establishment of a delivery authority, included in the recent pensions bill, will serve as a central point for decisions. This will bring in the expertise needed to set up the personal accounts scheme, but through a body which will be tasked to make key decisions in the best interests of members.

Mr Hutton continued: "These reforms are designed to fill a gap in the existing market - we want them to complement the existing market not compete with it.

"So, alongside the creation of the new personal accounts, we will take action to support existing pension provision.

"There will be no transfers into or out of personal accounts from or to existing pension schemes. And an annual limit will restrict the level of contributions an individual can put into their account.

"This will be £10,000 in the first year - to allow individuals currently without access to a good quality occupational pension to save in other, non-pension, products before 2012 and then to move them to personal accounts. A limit of £5000 will be established for subsequent years and we propose that this arrangement is reviewed in 2020."