Personal accounts will not protect workers in retirement

The government will fail to protect millions of Britons from poverty in old age unless it makes vital changes to the way in which it plans to introduce personal accounts, according to The Royal Society of Arts (RSA).

The RSA said in its report Pensions for the people: addressing the investment crisis in Britain, that although the government’s policy of auto-enrolment and personal accounts represents a big opportunity for UK savers, the scheme must be extended to cover pension payments above £3,600 if it’s going to have a major impact.

By limiting pension payments to £3,600 many savers across the UK will be forced to open private pensions that often charge exorbitant costs (often up to 40% of the value of their pension).

The report, written by David Pitt-Watson (a leading pension fund manager and founder of Hermes Equity Ownership Service), argues that this simple step would not require employers to match higher levels of saving; merely that higher savings can be placed in, and invested through, the same pension pot.

The RSA proposes that the infrastructure of the personal accounts system should be made available to a wide range of approved providers that conform to the basic principles of responsibility and low cost.