Tim Jones, chief executive of the Personal Accounts Delivery Authority, is leading Britain towards the 2012 pensions changes. He is confident the scheme will run smoothly, says Nicola Sullivan
As chief executive of the Personal Accounts Delivery Authority (Pada), Tim Jones is one of the key people behind making personal accounts a reality for employers and employees by the end of 2012. This key element of the government’s pension reforms, set out in the Pensions Act 2008, will be implemented in conjunction with the auto-enrolment of staff into a pension scheme, and compulsory employer and employee contributions. The reforms are designed to get millions of workers saving for their retirement.
“It is pretty simple,” says Jones. “Today, there are four people of working age in society for every retired person. By 2050, that ratio will be two people for every retired person. We are not implementing the reforms for any other reason than to increase the number of people saving more. That is what society needs.”
Like other occupational schemes, personal accounts, which will be introduced as an alternative to workplace pension plans, will receive minimum employer contributions of 3% and employee contributions of 4%, plus 1% tax relief. In essence, personal accounts will be a trust-based occupational pension scheme run by a not-for-profit trustee corporation, and will be independent of the government. “There won’t be any shareholders to pay,” says Jones. “The trustees will have a legal duty to act in the best interests of members.”
Because of the scale of the funds that will eventually be accrued into personal accounts, Jones says the trustee corporation will ensure it has the “best fund managers in the world” on board to build the accounts’ fund management and investment strategies. Pada is due to launch a consultation on its approach to the investment strategy for personal accounts this spring.
“Very few funds will be under management at the beginning,” he says. “It is certainly going to make operating losses in the beginning. It will go through a few years of making operating losses at 0.5% or equivalent, then it will bottom out and will start making more then it costs.”
For the most part, personal accounts will be administered online, with members accessing annual statements and other related documentation electronically. But plans to manage personal accounts as an e-enterprise have raised fears about large-scale, expensive technical blunders, similar to those seen in other public-sector projects, such as NHS Connecting for Health, which was intended to deliver detailed electronic records for every NHS patient.
But Jones is confident the technology around personal accounts will work well. “The public sector does not have a monopoly on unsuccessful projects – far from that,” he says. “We all use government services and I think across a range of government services, they are very impressive.”
Just who will be responsible for the huge task of administering personal accounts is still to be decided. Pada is currently scrutinising and evaluating the pension providers which have put themselves forward to do so. A shortlist will be drawn up this month and Pada is expected to announce the contract winner in the summer of 2010.
The chosen provider will manage the enrolment process and oversee the collection and reconciliation of employers’ and employees’ contributions. It will also ensure the provision of scheme information, the receipt of data from employers, and the agreement of payment schedules. In addition, the provider will be responsible for allowing pension savings to be accessed at retirement, managing refunds and complaints, and updating member and employer records.
As well as examining the merits of potential providers, Pada will be trying to establish what it can offer in advice and solutions to tackle some of the challenges that lie ahead, including the collection of public state pension contributions.
“We are going to spend a lot of time on contribution collection because it is hard,” says Jones. “How do we make sure we minimise the errors to make sure we get the right contribution collections for as many workers as possible?” A vast number of the employers that adopt personal accounts are expected to be small and medium-sized enterprises (SMEs). Ensuring smaller organisations have the tools they need to implement personal accounts and auto-enrol staff is a key issue for Jones and his team. He explains that there are plans to set up a centralised web-based service that will enable SMEs to calculate pension contributions by keying in their employees’ gross pay and the desired pension contribution rate. A direct debit could then be set up for employers to make contributions through the same website.
“Gross pay for most small businesses will be a good analogue for qualifying earnings because some of the other, more esoteric, things that might count towards qualifying earnings do not typically come in a benefits package,” says Jones.
Despite the focus on SMEs, Jones believes personal accounts will also have a place in larger organisations that want to run the scheme alongside any existing occupational pension plans. For example, employers could initially enrol new employees into personal accounts before encouraging them to move over to the company’s own scheme after 12 months’ service.
This would mean that if staff choose to leave their employer before the year is up, employers will not incur the administrative burden of taking that person out of the pension scheme because a personal account will be automatically transferred to their next employer.
If employers want to continue offering a workplace pension scheme outside of personal accounts, they must ensure it meets exemption criteria, so employees receive benefits that are at least as good as those available through personal accounts.
“My hunch is that most large employers are going to find a way to make their existing schemes qualify to be exempt from personal accounts because I think it is a big disruption for them to change their existing schemes,” says Jones.
Perhaps not surprisingly, speculation has already begun about the likely effectiveness of the reforms. According to the Department for Work and Pensions’ (DWP) report Savings for retirement: implication of pensions reforms on financial incentives to save for retirement, published in February, most employees will benefit from auto-enrolment.
But concerns have also been raised that a small minority of workers will be no better off because their new benefits will simply replace the means-tested benefits they would have received anyway. Jones believes the issue of means-testing, which affects only a minority of employees, should not detract from the retirement disaster that the pensions reforms are designed to prevent.
“It is as if people have started talking about the fact that there might be, if benefits remain exactly as they are, this negative reduction for a very small minority and that is good reason for allowing us to sleepwalk towards a future pensions crisis with millions of people not making enough retirement provisions,” he says. “The balance of the argument for me, as an observer of it, is, frankly, bizarre.”
Tim Jones was appointed chief executive of the Personal Accounts Delivery Authority (Pada) in 2007. Jones also holds ongoing positions at a number of organisations, such as the Centre for Studies of Financial Innovation and mobile phone technology company Probability. Between 2002 and 2005, he was recruited by Simpay to lead its mobile phone payments initiative. However, he began his career in the banking industry, joining the National Westminster Bank in 1983, where he was promoted to chief executive of retail banking in 1999. He also founded Purseus – an organisation focused on electronic and correspondent banking payments.
Jones has a degree, specialising in the history and philosophy of science from Christ’s College, Cambridge.
Personal Accounts Delivery Authority at a glance
The Personal Accounts Delivery Authority (Pada) is a non-departmental public body tasked with setting up a national, trust-based pension scheme scheduled to come into effect in 2012. Pada is accountable to parliament and reports, through a board, to the Secretary of State for the Department for Work and Pensions.
Key aspects of the organisation’s remit are to establish the best occupational pension scheme at a low cost, as well as set up a trustee corporation to manage it. Pada is also responsible for managing the procurement process of a third-party pensions provider for the system of personal accounts. Pada has launched a series of consultation papers on various aspects of personal accounts. For example, it has conducted a consultation on the most suitable charging structure. This is a key decision in the design of personal accounts as it will affect participation, members’ pension pots and the sustainability of the scheme itself. A public consultation relating to fund structures and investments is likely to be published in the spring.