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11 July 2000
INDIVIDUAL PENSION ACCOUNTS HELPING MORE PEOPLE SAVE FOR THE FUTURE
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- Read the Publication Individual Pension Accounts
Increases of up to 30 per cent in their retirement nest egg and greater freedom in their working lives could be possible for some personal pension savers using the new individual pension account (IPA), Economic Secretary Melanie Johnson said today.
The new IPA will particularly benefit those on moderate incomes, including part time workers, and those taking family or educational career breaks. It will enable the millions of pensions savers to have better, more flexible pension arrangements, which will be ideal for use with stakeholder pension schemes.
Miss Johnson and Social Security Secretary Alistair Darling today published a joint paper outlining the key features of the IPA, and seeking views on a small number of issues remaining following earlier consultation with pension providers and pension savers' representatives.
Welcoming the paper, Miss Johnson said:
"IPAs will offer many thousands of personal pensions savers new freedom to plan and diversify their working lives They can take time off work or change jobs, possibly several times, without losing out on retirement savings as a result.
"IPAs will be suitable for many people on moderate incomes. They may be particularly helpful to women, who are more likely to take part time employment or to take career breaks when starting a family, or for those returning to education or training courses. Both those individuals and the economy will gain from the benefits IPAs offer.
Pointing out their suitability for long term pensions planning and use with stakeholder pensions, Mr Darling said:
"We want more people to save for their retirement. The IPA complements other reforms such as the new stakeholder pensions. We wanted everyone to have the right options for them and the IPA gives more choice for saving."
Both IPAs and stakeholder pensions will become available in April 2001. Case study examples of the potential to enhance the value of pensions for those seeking flexibility in their working career are attached.
The advantages of IPAs in pensions saving include a simple charging structure, spread investment risk, security, transparency, and better understanding and confidence in equity investment. The IPA concept was based in part on the popular and successful US s401(k) savings scheme, which has encouraged savings generally, and equity savings in particular.
The development of IPAs marks a key stage in delivering the Government objective of providing secure, flexible and value for money pensions. The paper published today shows how IPAs will work and the steps the Government will take to ensure their availability when stakeholder pensions are launched in April next year. The areas covered by the joint Treasury and DSS paper include:-
- the IPA concept
- how it works in practice
- moving pension scheme with IPAs
- using IPAs for stakeholder schemes
- the legislative framework
- points where further views would be welcome.
Movement of IPA investments between savings schemes will be made easier by the introduction of a relaxation of stamp duty reserve tax rules to put IPAs on the same footing as pension savings in life insurance based products.
NOTES FOR EDITORS
1. Copies of the joint Treasury and DSS paper 'Individual Pension Accounts' are available on the Treasury and DSS websites. Printed copies are also available by calling the public enquiry units at the Treasury on 020 7270 4558 or the DSS on 020 7712 2171.
2. Proposals for IPAs were originally outlined in the joint Treasury-Department of Social Security publication "Helping to Deliver Stakeholder Pensions - Flexibility in Pension Investment" in February 1999 (Treasury press release 24/99). The working title for the product at that stage was "pooled pension investment" (PPI).
3. In August last year, Miss Johnson announced that PPIs would be launched to coincide with stakeholder pensions in April 2001 (Treasury press release 127/99).
4. Media enquiries should be addressed to Charles Keseru at the Treasury press office on 020 7270 5188 or Andy Fleming at the DSS press office on 020 7238 0755.
Twelve Facts about IPAs
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IPA stands for Individual Pension Account
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IPAs are a way of saving for a pension - not pension schemes themselves
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they are especially suitable for use in stakeholder pensions but can be used in all types of pension where contributions are invested to produce a fund at retirement
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they work in the same way as other private pensions - you put money into the IPA, this money is invested for you, when you are older or retire your fund will be used to buy a pension for you from a pension provider
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the tax rules are the same as for traditional pension investments
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they can contain units and shares in pooled investment funds, and gilts (government debt)
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these units and shares can usually be bought without upfront costs
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you will be able to see the value of your IPA by looking up the investments in a daily paper
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if you move jobs and transfer your IPA investments, your pension savings won't be hit
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if you move jobs and leave your IPA investments where they are, they won't lose value as a result
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IPAs are likely to be available from firms who traditionally provide pensions and others more associated with savings products such as unit trusts
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they will be launched at the same time as stakeholder pensions (April 2001).
IPAs - Real Life Profiles
Example A
Miss A is a teacher. Her working life spans 35 years. During this time she takes a five year career break to start a family, followed by a period of self employment to give a transitional period of flexibility before returning to full time work. She later takes a second five year break to look after her family before returning to full time work. She ends her career with a further period of self employment.
Under current arrangements she might retire with pensions from three occupational schemes and two separate unit linked pensions, with a combined total of around £51,000.
Using IPAs, which can be moved between schemes as necessary, throughout her working life, for the same level of contributions she could expect funds of over £65,000. (An increase of over 27%)
Example B
Mrs B is an IT specialist who started work after an extended period of higher education. Her first five years work are in a single job. She then does five jobs in ten years before taking a two year career break to care for her elderly parents. Following this she has a further two jobs up to retirement.
Retiring with a variety of pensions from both occupational and personal schemes, Miss A might have pension funds with a combined total of around £39,297. Using an IPA, for the same level of contributions, she could expect funds of over £47,394. (An increase of over 20%)
Example C
Mr C is a care assistant. He works over a 30 year period, part time and full time, during which he has two five-year career breaks to care for his children. During these periods his partner pays contributions into a pension for him.
Retiring with a variety of pensions from both occupational and personal schemes, Mr C might have pension funds with a combined value of around £38,000. With an IPA, for the same levels of contributions he could expect funds with a total value of over £49,000. (An increase of over 31%)