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Two options for running national scheme

The White Paper on pension reform features two distinct approaches to running a national pension savings scheme.

Major proposals in the Government paper published last week include restoring the link between the basic state pension and earnings from 2012 “subject to affordability and the fiscal position”.

The state pension age will rise to 66 in 2026, 67 in 2036 and 68 in 2046. The number of years of contributions required to qualify for the BSP will be cut from 39 to 30 years in 2010.

Lord Turner’s NPSS has got a provisional nod from the Government, with employees auto-enrolled from the age of 22, with the right to opt out. The Government says there could be an annual management charge of 0.3 per cent “in the long run” on what it is calling a national personal accounts scheme but is yet to commit to specifics.

Irwin Mitchell head of pensions Anne Taylor says: “The Government has reserved the right to delay implementation to the end of the next Parliamentary term if the reforms are not deemed affordable and one has to wonder whether some of these reforms will get through at all.”

The White Paper outlines two proposals to administer the personal accounts, ahead of a detailed consultation document this autumn.

The first option follows the Pension Commission’s call for a single organisation to provide the accounts with day-to-day running of the scheme outsourced to a number of pension administrators.

The other option introduces competition, with a number of pension providers offering accounts to build on existing pension infrastructure.

This approach is similar to the Association of British Insurers’ Partnership Pensions proposal, although it has a centralised function to collect and reconcile contributions, allocate default providers and collate information.

The Department for Work and Pensions is thought to favour the first option due to additional regulatory costs that could come with consumer choice but the White Paper points out the advantages of option two by building on existing provision.

Employees would be auto-enrolled into the scheme, paying 4 per cent contribution, 1 per cent from Government tax relief and 3 per cent from the employer in the 5,000 to 33,000 band. There would be no further tax relief for higher-rate taxpayers.

The Government says around 10 million people would be eligible and estimates between five and eight million would remain in the accounts.

The Association of British Insurers, which has been lobbying for industry involvement in the scheme, welcomes the decision to keep industry involvement on the table. Director general Stephen Haddrill says: “The ABI will strengthen its research on practical ways to address these issues to help Government reach the right conclusion on what kind of NPSS will serve customers best.”


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