The government says introducing further pensions reforms in the form of personal accounts with an element of compulsion will result in an additional net £4-5bn in annual savings, equivalent to 0.5% of GDP.
Personal accounts are seen applying to everyone earning more than £5,000 up to “about £33,500”.
Encouraging these additional savings will be a commitment to a long-term cost of 0.3% of funds under management “or even lower”, which Hutton says is between 20%-25% cheaper than an alternative model based simply on competition.
A range of funds, including SRI/environmentally focused funds, will be available, as will a default fund along with access to branded funds.
Hutton says to kick-start the ability to save, the government is proposing to allow a cap of £10,000 in the first year of the new regime, followed by a lower annual £5,000 cap – subject to consultation.
The regime itself will be subject to an independent authority, which will, once set in place, become known as the Personal Accounts Board, which would be able to act independently of government.
The regime will commit to a 3% minimum employer contribution rate, although the compulsive element is envisaged to work in the same style as the government’s existing oversight of the national minimum wage regime.
A number of issues are yet to be firmed up, Hutton admits, and are to be subject to further consultation. These include the question of waiting periods before new employees obtain accounts, and whether the simple, low-cost accounts visualised by the government should come with some sort of Kite-mark, of the sort outlined previously by the NAPF.
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