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Pensions: Personal accounts set to fail as few companies plan to adopt them

Personal accounts look likely to fail in 2012 as 80% of employers plan to keep their existing scheme and only 2% intend to offer a pure personal accounts arrangement.

Research on the views of HR directors, financial directors and pension managers by Punter Southall Financial Management shows this low engagement with personal accounts  - far below the economy of scale the Government hoped for - would make the arrangement more expensive than most defined-contribution (DC) schemes currently on offer.

The Government estimates seven million people in the UK are not saving enough for their pension so personal accounts are part of the Government's plan to reform pensions. Staff will be auto-enrolled into a scheme to which they will contribute 4% of their salary, the employer will contribute 3% and they will receive 1% in tax relief from the Government.

Commenting on the findings, a spokesman from the Personal Accounts Delivery Authority (PADA) said: "Our target market is people on low to middle incomes, many of whom currently do not have access to a workplace pension - either because their employer does not offer one or because they don't qualify for entry to an existing scheme.

"We don't expect huge numbers of companies with existing provision to use us across their workforce - we are designed to complement existing provision. A major part of our customer base will come from employers without existing provision. However, the scheme may also be useful for certain groups of workers within larger firms - for example, those on short-term contracts or in sectors where there is high turnover of staff.

"PADA is on track to implement the personal accounts scheme in time for the onset of employer duties in 2012. We envisage that the scheme will deliver a good quality pension with a low charge (0.5% annual management charge or equivalent) and help millions save for their retirement."

The survey of 300 firms also shows only 5% still provide a final-salary pension scheme. And while 48% of pension schemes have been reviewed in the past year, more than one in eight (14%) have not been reviewed in the past five years, if at all.

More than three quarters of staff invest in the default option in their scheme in 68% of companies and salary sacrifice has not been considered by 57% of employers.

Damian Stancombe, principal and head of corporate DC at Punter Southall Financial Management, said: "The scale of education and involvement of members must improve substantially. For instance, how many workers realise a 40 year-old who begins to save 10% of his earnings into a pension could expect to receive 25% of his annual salary as an income in retirement, but had the same individual begun saving at 26, his retirement income could more than doubled."

Is there an alternative to personal accounts in 2012?