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Confusion over personal accounts contribution limit

The Association of British Insurers and the Investment Management Association have written to Work and Pensions Minister James Purnell for clarification about the annual contribution limit for personal accounts.

The trade bodies got together after Purnell confirmed the annual limit would be capped at £3,600 despite the fact Labour peer Lord McKenzie denied a limit had been written into the Pensions Bill the previous day.

Speaking at the annual ABI chairman’s dinner on June 4, Purnell said: “We are determined that personal accounts will complement rather than replace existing employer schemes. That’s why we put in an annual limit for individuals in the personal accounts scheme of £3,600. And that’s why we’ve said there will be no transfers to and from existing schemes to personal accounts.”

But, during the second reading of the Pensions Bill on June 3, McKenzie said: “We have not put the amount of the contribution limit in the Bill, because we want to allow the annual contribution to operate flexibly. The wide enabling powers will allow for the higher contribution limit in the first year of the scheme’s operation and for a lifetime lump-sum contribution to run alongside the annual contribution limit. We need to consider whether to introduce this additional complexity when the scheme is introduced or wait for the review of the contribution limit in 2017.”

The ABI and the IMA are keen to cap annual contributions at £3,600 in a bid to limit the effect personal accounts have on the private sector.

ABI spokesman Jon French says: “We have sent a joint letter from ABI director general Stephen Haddrill and the IMA’s Dick Saunders to James Purnell, seeking clarification of this point.”

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