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Last Updated: Wednesday, 2 January 2008, 12:05 GMT
Warning on new state pension plan
Lord Adair Turner
Lord Turner proposed the idea of personal accounts
More final salary pension schemes may be closed because of the government's new national pension plan, actuaries have warned.

The Association of Consulting Actuaries (ACA) says 36% of smaller employers may close their pension schemes and rely just on the new system instead.

The scheme is being introduced by the current Pensions Bill.

It is expected that it will provide an extra state pension for about five million workers.

'Levelling-down'

"The current Pensions Bill due for its second reading on 7 January is - to date - falling short," said the ACA.

PERSONAL ACCOUNTS EXPLAINED
Employees compelled to join the scheme, unless they already have a good workplace pension or choose to opt out
Contributions will be paid on earnings between 5,000 and 33,500 p.a.
There will be an annual ceiling on total contributions of 3,600
People will not be able to transfer funds from existing pension plans
Contributions will be collected centrally and paid into a choice of investment funds
Start date for personal accounts will be 2012
Personal accounts part of a wider pension shake-up involving a raising of the state pension age to 68

"Many employers [are] considering closure of their existing defined benefit schemes to new entrants and increasingly existing employees," it added.

A recent survey for the ACA, of 336 employers and their pension arrangements, found that 36% of those firms with fewer than 250 staff said they might close their existing schemes in favour of the new government one.

A similar proportion of employers also said they would also change the benefits of their current schemes to offset any extra costs associated with the government's new plan.

"The results from this and other surveys shows ample evidence that levelling-down has been happening for some time and is predicted to continue apace by those who run private sector firms and schemes," warned the ACA.

Personal accounts

The impending scheme, currently described by the government as "personal accounts", will force all employers to enrol all their staff into their pension schemes if they are not already members.

Through the current Pensions Bill we are introducing measures to ease the burden of regulation on employers
Pensions minister Mike O'Brien

Where no scheme exists, or it is inadequate, then the staff will automatically become members of the government's new plan.

It is due to start by 2012 though the head of the Personal Accounts Delivery Authority, Tim Jones, told the BBC Money Box programme that there was a "possibility" that the launch date might be delayed.

The scheme will eventually require staff to pay in 4% of their salaries, with employers adding another 3% and the government contributing a further 1% through tax relief.

These rates will be applied to earnings between 5,000 and 33,500.

The creation of the scheme was one of the principal recommendations of Lord Turner's Pension Commission in 2005 as only 44% of employers offer any sort of pension scheme for their staff.

"There has been a steady decline in private sector defined benefit pension schemes since the late 1960s," said the pensions minister Mike O'Brien.

"There is no magic bullet solution but through the current Pensions Bill we are introducing measures to ease the burden of regulation on employers and to support those who provide high quality pensions," he added.

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