Question: Is it true an employee who is compelled to have a personal account will still be a member of S2P as well?
Edmund Downes, Aviva: In general terms, yes. However the lower earnings thresholds for National Insurance and Personal Accounts are not quite identical and may not be brought into line. So, depending on where the limits end up, it is likely that there will be a small number of employees who will be auto-enrolled into Personal Accounts who will not pay National Insurance or vice versa.
There may remain some other anomalies. Some people, who are classed as "Jobholders" and therefore need to be enrolled into Personal Accounts due to the fact that they work in the UK, may not pay any UK National Insurance despite them earning over the threshold. A typical reason could be that they are still a member of the equivalent National Insurance type scheme in their previous country of residence. Conversely, some people earning below the earnings limit for Personal Accounts might get credits for the S2P due to them having carer responsibilities.
In the vast majority of cases though the answer is "yes", so it is a useful rule of thumb that anyone earning over the LEL for National Insurance should be a member of either Personal Accounts or a substitute Qualifying Scheme.
Remember though that members of a Qualifying contracted out defined benefit scheme, who otherwise would have been auto-enrolled into Personal Accounts, won't accrue any S2P as contracting out under these schemes is still permitted after 2012.
Jamie Clark, Scottish Life: Yes, it is the case that employees auto-enrolled into Personal Accounts may also accrue S2P benefits. In general, it's only employees in contracted-out schemes or those who consistently earn less than the 'Lower Earnings Limit' (LEL) who won't accrue S2P benefits.
We know that contracting-out for all but defined benefit schemes is expected to be abolished from 2012 so those in Personal Accounts will be building up benefits in S2P.
For employees whose earnings fall below the LEL, they will probably not have to be auto-enrolled into Personal Accounts anyway as their earnings will fall below the £5,035 (in 2006/2007 terms) 'qualifying earnings' minimum.
In the future (currently, the expectation is 2030), S2P for all employees will be changed from earnings related to flat rate. This effectively means that those with lower career earnings will get more benefit from S2P and will therefore have to rely less on any means tested benefits. That, in fact, is the main point of these changes to S2P. So far, so good.
The problem is that even with these changes, there will still be some caught in the means testing trap. They will potentially receive three separate elements of income when they retire - the basic state pension, S2P benefit, and finally, any income generated through saving in Personal Accounts. It is the total of these three streams that is taken into account when applying means testing. And that's the politically prickly issue. The voluntary element of their pension savings in the form of Personal Accounts could effectively be taxed via means testing. And although employees have the choice to opt-out of Personal Accounts (there is no compulsion for employees to stay in), they won't know whether they should have done until they reach retirement age.
There are various ideas as to how this issue can be tackled - a 'Citizen's Pension', set at a level above the means testing limits, is one; allowing individuals to undo Personal Accounts by commutation is another. Whatever happens, it's bound to be complicated and will no doubt keep the industry on its toes for many years to come.
Mike Morrison, AXA Winterthur Wealth Management: Yes, you can still be a member of S2P as well. Changes to National Insurance contributions due to be implemented in this new tax year should prompt everyone to consider whether it is worth leaving the State Second pension or, in the case of those already contracted out, whether or not to contract back in.
Of note is that after 2012, when the new Pension Accounts come into being, it will no longer be possible to contract out of S2P into a money purchase personal pension, so it is as well to consider the situation the pros and cons now.
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