Public opts out of government pension plan – Personal Accounts

Government proposals for the new Personal Accounts Scheme (PAS) have been negatively received by the general public, with high levels of disapproval and also widespread misunderstanding of what the Personal Accounts Scheme will entail.

The government’s Personal Accounts Scheme would automatically enrol all employees who have no pension provision into a pension fund after 2012.

The government-backed scheme would be based on an employee contribution of 4% of salary, an employer contribution equal to 3%, and a further 1% in tax relief.

While ‘auto-enrolment’ in the Personal Accounts Scheme is compulsory, employees do have the right to opt out of the scheme if they wish to do so.

New research* shows that only 19% of British adults say they will definitely remain in the PAS, as against 36% who claim they will definitely use their right to actively ‘opt-out’ of the scheme.

Those most likely to actively opt out are in the 35-54-year-old age bracket. This would seem to echo concerns among older workers that the PAS would be of limited value to them, because they are already halfway through their working lives and their savings would have less time to grow in a new scheme.

Ten per cent of respondents claimed they would be unable to afford to make the required payments into the scheme.

Public understanding ‘patchy’

Public understanding of the PAS is still patchy, with 6% of all respondents (rising to 11% among 18-24 year olds) claiming they did not understand the PAS proposals. Another 7% of the population associated the term ‘personal accounts’ with e-mail addresses, and 9% said they had never heard of them.

AXA’s head of pension development, Mike Morrison, commented that this leaves the Personal Accounts Delivery Authority with a considerable marketing job to do, in order to win public confidence and secure the survival of the scheme. 

Morrison also warned that the PAS could also lure savers out of more substantial company pension schemes. 

“The reforms will not be successful if they largely move current and future savings – and savers – from occupational schemes, especially where many of these make total contributions at significantly higher levels than those proposed for Personal Accounts,” he said. 

* Survey of 2110 UK adults, published by AXA November 2009