The Pensions Act 2008 provides the legislative framework for the government’s pension reform. It is planned by 2012 that the provisions of the Act will require all employers to provide a workplace pension, enrol all employees who meet certain criteria and contribute a minimum of 3% of salary (between an upper and lower limit). The Personal Accounts Delivery Authority (PADA) will set up a pension scheme, known as ‘Personal Accounts’, which employers will be able to use if they do not wish to set up or maintain their own pension provision. This will enable them to fulfil their new obligations.
Although the Act has been passed to bring these requirements in from 2012, there are still further regulations to come. Also, the design of these schemes has not been set by the legislation but will be designed by PADA, so there is uncertainty about what the Personal Accounts scheme will look like and the structure of charges. The aim is for these schemes to be low cost.
For an individual seeking financial advice today, their circumstances in 2012 will be unknown. It is likely that if they are employed at that time, their employer will offer a workplace pension with an employer contribution; this might be through a Personal Account or through another workplace pension, which will have to meet specific minimum standards if it is to qualify as an alternative scheme.
Where any individual has a need and a desire to save (be that generally or specifically for retirement) there should be no question of delaying saving until 2012. Putting off saving would not be in the best interests of the individual.
When financial advice is given, current circumstances will be taken into account together with the extent to which the future pension reforms will be a factor. The extent to which they are a factor will increase, as we get closer to this implementation date and as the design of the Personal Accounts becomes clearer.
