Cicero Policy Briefer

Issue 24, May 2008

Introducing the Personal Accounts Delivery Authority

By Jeannie Drake, Non-executive Director, Personal Accounts Delivery Authority

An estimated seven million people are currently under-saving for retirement and will not have the lifestyle or income in retirement they aspire to. This is a stark fact, but true, and it is exactly what the introduction of personal accounts is designed to combat.

For the first time, not only will everyone have access to a good workplace pension but they must actively choose to opt out of pensions saving, rather than choosing to opt in. Automatic enrolment is a key feature of personal accounts and will be pivotal in creating an environment where it is the norm rather than the exception for low to medium income groups to save for retirement.

At the Personal Accounts Delivery Authority we are advising the Department for Work and Pensions on policies set out in the Pensions Bill currently going through Parliament. Once the Bill gets Royal Assent the delivery authority will become an executive body and we will begin to deliver personal accounts.

This is a significant challenge and one we would be foolish to underestimate. We are charged with delivering a scheme that will be bigger than any other in the UK. We estimate there will be around 5.5 million members and there could be between £100 and £200 billion of assets under management by 2040. We will be working with up to a million employers.

It is not just the size of the scheme that makes the challenge ahead unique. While personal accounts will, in many ways, be just like other occupational pensions, they will also have a number of unusual features such as a proposed contribution cap. They will also, importantly, have a universal service mandate—nobody will be turned away, even if the business they bring is unlikely to be profitable.

Millions stand to benefit from the successful introduction of personal accounts. Simple and low cost, the scheme will offer real value for money to future members. This can only be a good thing.

However, making the economics of the scheme work will be challenging and there are already a number of non-standard features. Any additional bell or whistle imposed on the scheme will make it more costly and this cost will ultimately have to be paid for out of people’s retirement incomes. That is why keeping things as simple as possible is paramount.

We are determined that the personal accounts scheme should be an exemplar in terms of good governance, the choices it offers members, the characteristics of the default investment option and transparency. At the delivery authority we are building a strong team, bringing together the best of the private and public sectors, to deliver the scheme. We are also committed to engaging widely with the industry, consumer representatives and other stakeholders so that we can benefit from the wealth of talent and experience that exists there.

We are also undertaking a number of formal consultations as we begin to put the framework in place for implementing the scheme. The first of these, on the charging structure for the scheme, recently came to a close but we have future consultations planned on both the investment structure for personal accounts and the scheme rules.

A powerful consensus currently exists as to the need for personal accounts and we must all work to maintain this consensus as we move forward. While there may well be some differences of opinion along the way we must all keep the goal of delivering a simple, low cost scheme that will benefit millions of people at the forefront of our minds.

Complementing rather than replacing existing provision, the successful introduction of personal accounts will fundamentally change the pensions landscape. For the first time, everyone will have access to a good workplace pension with an employer contribution. The importance of this change cannot be overestimated.

Jeannie Drake is a non-executive director of the Personal Accounts Delivery Authority and can be contacted here.