Personal Accounts: Ten things to think about

The Government has now put some flesh on the bones of the Personal Accounts regime, due to start in 2012. The scheme will give all employees the right to a workplace pension with a contribution from their employer. But will the scheme necessarily be the one for you?

Geoff Tresman, Chairman of Punter Southall Financial Management, has put together a 10 point checklist. In the meantime, Tresman advises individuals not to waste the next 5 years waiting for the scheme to be implemented as Personal Accounts won't make up for any undersaving in the years leading up to 2012.

• Am I already a member of my employer's pension scheme? If you are and your employer pays contributions to the scheme, then staying in the scheme is likely to be the best option at least until 2012. If your employer's scheme is classed as being better than the personal accounts regime, your employer won't have to offer personal accounts anyway.
• I can join a pension scheme with employer contributions? If so, it is likely to be a good idea to join the pension scheme now if you haven't already done so and get the advantage of the employer contribution for the next 5 years.
• Can I afford to save between now and 2012? This is a personal decision, but if you can afford to do so, you should certainly start saving as soon as you can.
• What major financial events do I have coming up in the next 5 years? If you are currently saving for a house deposit, then that may be more important to you at the moment than saving for your retirement. But don't put off the decision to save for retirement indefinitely.
• Do I have any unused ISA allowances? If so, this may be a tax-efficient way to save for retirement between now and 2012. The ISA funds can be paid as a contribution into a personal account in 2012, so long as they are less than £10,000.
• Does your employer provide a stakeholder pension scheme? Even if there is no employer contribution, starting to save in a stakeholder scheme could enable you to start building up a retirement fund between now and 2012. Note however that you won't be able to transfer any pension funds you have built up in the stakeholder scheme into a personal account in 2012 it will only be possible to pay across funds from non-pension savings vehicles.
• What level of charges am I currently paying on my savings? Personal accounts will offer a low cost way of saving for retirement. If you are currently paying high charges, you may want to look at lower charging vehicles between now and 2012. For example, there are limits on the maximum charges that apply on stakeholder pension schemes.
• Am I likely to opt out when personal accounts come in? Personal accounts will provide a low cost way of saving for retirement. However, they will not be the best option for every individual. If you have no other savings and are likely to retire fairly soon after 2012, then it may not be in your best interests to contribute to personal accounts, as it will simply replace means-tested benefits that the state would have provided anyway.
• For how long do I expect to have a personal account? If you are close to retirement, then you will only be able to build up a small sum in a personal account between 2012 and retirement. You may therefore want to make alternative arrangements and not take out a personal account at all, or may want to build up non-pension savings for example in an ISA and pay them into the personal account in 2012 in order to have a more substantial pension in retirement.
• What rate of tax relief am I expecting on pension contributions? Pension contributions receive tax relief at the member's marginal rate. If you are a higher rate tax payer now, but expect to be a basic rate tax payer in 2012 for example, because you are planning to ease down into retirement, then your pension contributions now will be more valuable than they will be in the future. So that's an added incentive to make the contributions now.