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MPs call for pension account simplicity

Simplicity and low cost are the key factors which will be necessary to make the government's proposed new system of 'personal accounts' for pension saving successful, MPs have stressed.Under plans announced in a white paper in December workers will automatically be enrolled in the new personal accounts system if they do not have access to an existing occupational pension scheme, with employers expected to pay at least three per cent of the worker's wages into the accounts.In a report published today, the parliamentary work and pensions select committee agreed that while the plans had the potential to give millions of people access to a low-cost pension saving scheme, inclusive of an employer contribution for the first time, low charges were "crucial" to making the initiative work.Members of the committee said that imposing an annual management charge of 1.5 per cent, rather than 0.5 per cent, for accounts could result in a person receiving 20 per cent less in savings after a 40-year period.They also said that it was important for the scheme to be simple to operate for employers and urged the government to reconsider its refusal to collect contributions for the personal accounts through the existing pay-as-you-earn system.MPs said they had found "a great deal of support" for such a proposal while collecting evidence from various bodies during their inquiry and warned the government that an "over-bureaucratic" or "inefficient" collection system would undermine the potential for personal accounts to be a success.The committee also said that the scheme should be easy for consumers to understand and said they should not be "bewildered" by marketing leaflets or confused as a result of being offered branded funds. Commenting, committee chair Terry Rooney said: "The principles of the personal accounts system are exactly right â€" giving employees access to a low-cost savings scheme, where they can contribute, knowing their employer and the taxman are also putting money in." "What we need now from government is serious engagement to make the system workable for employers and employees, and for it to set out its proposals on the provision of advice as soon as possible," he added.Responding to the report, the Association of British Insurers (ABI) said that the committee had highlighted the key areas of the government's proposals which still warranted clarification, including the need to be transparent about the costs associated with personal accounts and the definition of the target market for the planned scheme.A spokesperson for the Department of Work and Pensions (DWP) said the government welcomed the committee's findings and would consider them in due course.Ministers estimate that up to ten million people would automatically be enrolled into personal accounts when the pensions saving scheme is introduced in 2012.

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