Pensions minister James Purnell has admitted that up to half of the money invested in personal pension accounts in 2012 is expected to be money switched from existing pension provision.
In the second Pensions White Paper, the Government revealed estimates that personal accounts will take £8bn in the first year, 60 per cent of which will be in new savings and 40 per cent, or £3.2bn, churned from existing provision.
But after a question tabled by Labour MP Frank Field, Purnell admitted up to 50 per cent, or £4bn, could be ripped from existing schemes.
He said: “The 60 per cent figure is the middle point of a range of 50-70 per cent that was put forward as a plausible assumption for the average level of new savings in NPSS or similar personal accounts schemes.”
These figures stem from a survey by the Department for Work and Pensions last year.
Aegon head of pensions development Rachel Vahey says the new figures further highlight the “potentially disastrous” impact that personal accounts could have on the industry.
She says: “By the Government’s own admission, there is a real risk up to half of money going into personal accounts will be cannibalised from the existing savings market. This is unacceptable and a potentially disastrous outcome which fails the Government’s key test of personal accounts complementing rather than competing against existing savings.”
Hargreaves Lansdown head of pension research Tom McPhail says: “There is a significant risk to existing provision but I am very sceptical of these figures. Look at what happened with stakeholder, where the Government got it completely wrong.”