Full introduction of personal accounts delayed

The full introduction of personal accounts is to be delayed by one year, allowing employers to contribute just 1% into their employees’ pensions for longer.

In the pre-Budget report, Chancellor Alistair Darling announced that employers would not have to meet the full 3% contribution until October 2017.

Auto-enrolment with a 1% employer contribution will still begin in October 2012, but prior to yesterday’s announcement employers were to increase the amount they were paying into employees’ pensions by 1% each year up until 2016.

The chancellor said the move is designed to help businesses suffering from the recession while also contributing towards £5bn worth of savings for the government.

But Paul Macro, a senior consultant at Watson Wyatt, said that trying to save money on pensions tax relief is a short-term approach to putting the public finances in order.

“This is a bit like using your credit card to pay off a loan. Most tax relief is simply tax deferral, so much of the gain to the public finances comes from bringing tax revenues forward rather than raising new money, and future benefit spending will also be higher if people delay starting to save. The fiscal crisis isn’t going to stop us getting old, so how does it remove the need to save for retirement?”

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