Capping contributions to personal accounts could discourage saving

Setting a low cap on contributions to the government’s proposed system of personal accounts could discourage people from saving.

This is according to the  Which? Personal Accounts Contribution Cap Research, which surveyed the scheme’s target audience, excluding anyone earning less than £5,000 or more than £33,000 a year or who had a company pension. The results showed that just 12% said there should be a limit on contribution levels.

Some 70% said that there should be some flexibility about how much can be paid into the scheme.

If a contribution limit was set, only 18% of respondents support a level of £3,000 which was proposed by the financial services industry, while 42% think that level should be at least £5,000.

In the event of a low cap being applied, 52% of respondents said they would be discouraged from saving more money by having to open another personal pension

The majority of respondents said they thought that decisions about the contribution limit should reflect consumers’ interests rather than the needs of the pension industry.

Emma Higginson, personal finance campaigner at Which?, said: “Personal accounts must not fall at this hurdle. The absolute priority must be a scheme that is designed to enable people to save in line with their aspirations for a comfortable retirement.”