Any contribution cap on personal accounts would discourage people from saving for retirement, claims Which?
Government proposals for personal accounts, outlined in a December white paper, includes an annual contribution limit of £5,000 - £2,000 higher than the level suggested by the Pensions Commission. This has raised concerns among the life and pensions industry that the new system could compete with existing products.
However, while the Government has confirmed it is rethinking the contribution limit following representations from the industry, Which? says only 12% of the target market for personal accounts – low to median earners – believe there should be an annual limit.
In addition, the survey of 257 people who fall into the target market reveals 70% believe there should be flexibility about how much can be paid in, with just 18% supporting the industry’s preferred level of £3,000, and 42% preferring the higher £5,000 limit.
The findings also suggest retirement savings could suffer if a low cap is applied, as 52% of respondents say the hassle of having to open another personal pension would put them off saving more for retirement.
Which? claims over half of those surveyed say they would be more likely to save for retirement if they could pay into a single pension scheme with no limit on contributions. The majority of respondents believe any contribution limit should reflect the needs of consumers rather than those of the pensions industry.
Emma Higginson, personal finance campaigner at Which?, says personal accounts should not fall at this hurdle, the absolute priority must be a scheme which is designed to allow people to save in line with their aspirations for a comfortable retirement.
She adds: “Any decision on the design of personal accounts shouldn’t be at the expense of the consumer. Our evidence is clear – consumers want a flexible personal account with no contribution limit and if there was a limit, only a minority favour a cap of £3,000.”
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