The government is considering how personal pensions accounts would work in in the latest follow-up to its White Paper on pension reform, published last year.
Publication of qualitative research commissioned by the Department for Work and Pensions coincides with the launch of the consultation.
The research, conducted through 22 focus groups and in-depth interviews with the public, reveals that:
- participants across all groups welcomed the idea of automatic enrolment into personal accounts as a good solution to bridge the savings gap
- the majority of participants saw an employer contribution as an important incentive to save in a personal account
- participants’ spontaneous suggestions on what employees should contribute ranged between five and ten per cent of gross salaries
- the majority of participants believed it was important that the state offered a contribution – to make it clear that the Government wants to support people to save for retirement
- the contribution levels proposed by the Pensions Commission2 (four per cent post-tax employee contribution, three per cent from the employer, and one per cent from the state) were generally well received and felt to offer a fair balance of responsibilities
- being able to transfer a personal account between employers was thought to be a particularly important feature of personal accounts
- liquidity (being able to borrow against or withdraw funds before pensionable age) was not a popular option
- in general, participants were not keen on the idea of choice about funds or providers
- the idea of a default fund was well received as was the proposal for a National Pension Savings Scheme, with centralised administration, collection and investment of funds
- participants raised the idea of a guaranteed fund - something that would grow by at least as much as in a bank or building society or reflect inflation.
Speaking at the launch of the consultation, James Purnell, minister for pensions reform, said: “The aim of our radical reforms is to embed a new savings culture which will see up to 10 million people, many of whom are currently not saving for retirement, benefit from a system of low-cost personal accounts.
“Getting more people saving is crucial to avoiding a pension crisis in the future. People recognise that they need to save more. We are now working with industry and employers to make this simple and easy to do.
“It is also estimated that personal accounts will generate an additional £4-5 billion of saving - equivalent to half a per cent of GDP.”