There is to be a cap of £3,600 set on annual contributions to the government’s personal accounts pension scheme. The announcement was made as part of the government’s response to consultations on the Pensions White Paper. It was also confirmed that, under the personal accounts scheme, the minimum contribution made by employees to the fund will be 4 per cent of salary. This will be topped up with a 3 per cent contribution from employers and a 1 per cent contribution from the government in the shape of tax relief. The scheme is to commence in 2012 and will be open to all employees with salaries of between £5,000 and £33,500. Any employees who are not already members of an occupational pension scheme will be enrolled automatically in the fund. Individuals can, however, choose to opt out. John Hutton, Secretary of State for the Department for Work and Pensions, said: “We know that people are far more likely to save for their retirement if they have access to a simple, low cost pension with a contribution from their employer. That is exactly what personal accounts will provide.” It is thought that up to ten million people will take up personal accounts when they are introduced. Current calculations suggest that the yearly cost of employer contributions will be £2.8 billion or 0.7 per cent of total labour costs. The £3,600 cap was broadly welcomed by business and the pensions industry. Despite pushing for a lower limit, the Association of British Insurers acknowledged that the government had “listened to concerns” and described the cap as something the ABI could “live with”. John Cridland, deputy director-general of the CBI, said: “The government's package for personal accounts will go a long way towards addressing the problem of pension saving for lower earners.” He added: “The cap on personal accounts contributions strikes a sensible balance between ensuring the less well off can contribute sufficiently to a scheme without undermining the personal pensions market. We hope these measures will provide the foundation for a national consensus on tackling the long-term pensions needs of the UK.” Date:15 June 2007
Content by: Made Simple Group
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