THE Government's planned overhaul of pensions through the introduction of Personal Accounts in 2012 could damage existing company schemes and prove to be an expensive mistake, pension experts have warned.
Personal Accounts are being established as part of the National Pensions Saving Scheme to tackle the public's failure to save enough for their retirement. They are included in the Pensions Bill due to receive Royal assent in October.
All worker
s will be automatically enrolled into Personal Accounts, occupational pensions schemes or group personal pensions with a compulsory employer contribution.
Rachel Vahey, head of pensions development at life and pensions firm Aegon UK, said that while there is consensus on the need for the Government to take action to encourage long-term saving, there are inherent problems with Personal Accounts that must be ironed out.
She said they "cannot be allowed to fail" because of the devastating effect this would have on the entire pensions industry.
One of her main concerns is that the red tape involved in introducing the new system could be damaging for companies already offering good schemes and disrupt the provisions they are making for employees.
Small companies are likely to feel the biggest impact.
She said: "Even someone employing a nanny or a hotel with seasonal staff will have to offer a scheme."
She added that a "big stick" approach is being adopted by the Government to force companies to offer a scheme as it will be a criminal offence for them to fail to do so.
Another issue is the Government's decision to build the Personal Accounts Delivery Authority (Pada) from scratch to introduce the system, rather than use the existing infrastructure and experience available from life and pensions companies.
Vahey said: "Why go to the expense of building something new? It's like trying to create another life office."
The Department of Work and Pensions has committed £36m to Pada this year alone and Vahey wants more transparency on what the money will be spent on.
Vahey becomes the senior executive in the pensions division following the retirement of Stewart Ritchie as director of pensions at Aegon UK on Friday. He warned that if the Conservatives won the next election it could disrupt the introduction of Personal Accounts.
"Even if something is on the statute books it isn't set in stone. After Labour came into power in 1974 Barbara Castle tore up the Keith Joseph plan for pensions and replaced it with the Social Security Pension Act which introduced the State Earnings Related Pension Scheme."
The full article contains 428 words and appears in Scotland On Sunday newspaper.
