Cicero Policy Briefer

Issue 19, December 2007

Personal Accounts: Will employers get the message?

By Stephanie Fraser

As the Government embarks on the next phase of the development of its strategy for personal accounts (the second pensions bill was introduced in the Commons on the 6th December), Pensions Minister Mike O’Brien has been reiterating the essential components of the scheme. Low cost, accessibility and simplicity have long been the key tenets of personal accounts, as originally outlined by Lord Turner in 2006. However, these objectives have evolved and the key question to be asked now is—simplicity for whom?

Turner said that personal accounts must be simple and straightforward in order that individuals, particularly those on low incomes who are not traditionally savers, will be able to see clearly the benefits of being involved. Personal accounts, if delivered successfully, will provide adequate savings for all individuals to live securely in retirement, at a level better than the basic subsistence level provided by benefits. This is the message that the Government must communicate effectively.

To this end, the Government has switched its focus from the individual to the engagement of the employer, and is now looking to deliver the simplest possible way for employers to get involved in personal accounts. All employers need to be fully engaged in order to ensure that everybody has the opportunity to be included in the scheme, but so far the government has encountered a degree of resistance to personal accounts from employer organisations. The Federation of Small Business has argued stridently that small employers can not be expected to dedicate resources, either monetary or administrative, to delivering personal accounts. In this they have been supported by other trade bodies and organisations such as the EEF and the CBI. It is to quell these fears that O’Brien has offered the reassurance that personal accounts will not be onerous for small businesses, either in terms of cost or time requirements.

At the heart of this matter lies a concern within government that insufficient numbers of people will sign up to the scheme for it to operate viably and successfully. There is anxiety about the possibility that many employers could effectively opt out by encouraging staff, financially or otherwise, not to opt in. It will be impossible to prevent this from happening in all cases, but in order to minimise its occurrence the government are aiming to create a system which means that during normal working life, involvement in the scheme will be reasonable but not onerous.

The key to preventing large scale opting-out of personal accounts will be making sure people know that personal accounts are “the best deal you’re going to get”. The policy for developing this communications strategy will be the responsibility of the Personal Accounts Delivery Authority (PADA). The Government will only get one chance to set in motion a replacement for the currently inadequate state pension system, and it is a fair assumption that there will be a heavy investment in this communications campaign to make sure that absolutely everyone gets the message.

Many issues around personal accounts have yet to be resolved, not least in the details of the interaction between personal accounts, pensions credit and benefits, but at least with regard to employers, the Government has seen the danger and is tackling the challenge head on.

Stephanie Fraser can be contacted on +44 (0)20 7665 9531 or click here to email.

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