Welfare reform on the Web (February 2007): Pensions - UK

Personal accounts: a new way to save

Department for Work and Pensions

London: TSO, 2006 (Cm 6975)

This White Paper sets out the Government’s proposals for a new national system of low-cost personal accounts. These accounts are designed for the approximately 10 million people who are currently not participating in a pension scheme, are aged between 22 and State Pension age and earning over £5,000. The Government proposes that:

• Individuals will be automatically enrolled if they earn above £5,000 a year
• Employees will pay contributions of around 4 per cent of their earnings
• The employee contribution will be matched by 3 per cent from the employer together with around 1 per cent in the form of normal tax relief from the State

The government expects that the introduction of personal accounts will lead to a significant shift in the pension savings culture by providing an incentive to save and overcoming inertia and short-termism.