The government has proposed to lower the annual personal contribution cap on personal accounts in its response to the consultation on its white paper on pensions reform, which was published last month.
The proposed reduction from £5,000 to £3,600 will help the system of personal accounts to target the right audience, said John Jory, deputy chief executive of B&CE Benefit Schemes. “The Pensions Commission’s remit was to address medium-to-lower earners, and retaining a cap of £3,600 means personal accounts is aimed at these people,” he said.
The government’s failure to address the problem of means testing, however, could result in some employees being worse off under the system of personal accounts when it is introduced in 2012. Current proposals state that staff who accumulate more than £15,000 in a personal account by the time they retire may find other state benefits are affected on the basis of means testing.
“We feel very strongly that there will be some people who could be worse off at retirement. That is totally wrong and needs to be addressed,” said Jory.
The white paper on pensions reform is expected to form the basis of a bill that will be presented to Parliament after it resumes in September.