Planning for Personal Accounts

With personal accounts due to launch in 2010, employers will soon be forced to set up pension provision for their employees. Group personal pension schemes have emerged as one potential solution.

The main attraction is their simplicity. The employer collects contributions straight from payroll and passes them over to the provider. This is then invested as per the employee's instructions. Although a group scheme, each employee has their own plan so they benefit directly (and only) from their own contributions and can also decide how it is invested. Contributions benefit from tax relief at the employee's highest rate and employers can also contribute, usually around 3-5% of gross pay.

This not only helps the employee but also the company tax bill - and can also reduce national insurance contributions. In addition, a contribution of at least 3% might help to cover any future requirements demanded by the Personal Account rules, pre-empting the need for a separate scheme. (Note, these rules are still being finalised, so final details are subject to change.)

Finally, at the end of the employment, employees can simply take their sub-plan with them and keep contributing to it themselves. This reduces the need for the administration of retained benefits and also helps prevent the employee from running up lots of different pensions as they change employers through their careers.

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