Personal accounts will be classed as an occupational pension scheme and will be approached as a hybrid model, the DWP's White Paper says.
The white paper published this afternoon: ‘Personal Accounts: a new way to save’ reveals the government has chosen to base the personal accounts system mainly on Lord Turner’s recommendation for a National Pensions Savings Scheme (Npss), but adding there will be “a choice of funds for those who want it”.
It says the Npss-based approach will give consumers who don’t feel able to make investment choices a simple system with a default fund, where they only have to decide whether to opt-in and how much to contribute.
But the paper admits research reveals some consumers might want the option to invest in ethical funds or investments which conform to religious beliefs, so the government will get the delivery authority, and then the personal accounts board, an independent governance body, to design a series of investment options which will meet these needs.
However, in the executive summary of the paper, the government justifies its decision to base the new system on the Npss model by stating it will result in higher levels of persistency as it will not be based on firms competing with each other and encouraging people to switch providers.
And it argues this, along with reduced marketing costs due to firms not competing for individual accounts, should drive down costs, with the government claiming the proposed approach will be 0-5% cheaper than a system based on direct competition between firms for individuals.
As a result, the government says it is “confident that the scheme can achieve a radical reduction in pension charges even in the short term” and warns it will be giving the personal accounts board a statutory duty to deliver low costs to its members.”
That said, although the government is introducing the personal accounts board as a method of governance for the new scheme, it says personal accounts will be subject to a regulatory regime based on the existing framework, rather than “adding to the regulatory landscape”.
And despite this decision, details of who will actually regulate the system are sketchy, with the paper stating: "Work to decide the allocation of regulatory roles will be taken forward alongside the deregulatory and institutional reviews, and in consultation with the appropriate bodies.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
The increase in minimum AE contributions has had little impact on opt-out rates - with cessations after April increasing by less than two percentage points, data from The Pensions Regulator (TPR) shows.
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