Reports and Briefing Notes

Increasing the value of saving in Personal Accounts: rewarding modest amounts of pension saving

There is a broad degree of consensus for the principle of auto enrolment, as a way of overcoming inertia and increasing the number of people saving for their retirement. However, some stakeholders have expressed concern that some employees might be auto enrolled into a product that might not be suitable for them. 

Several policy options have been discussed as ways of reducing the risk that employees are auto enrolled into saving when it is not suitable:  

1. Provide generic advice and information to help individuals make the right decision about whether to stay in or opt out of pension saving. 
2. Not auto enrol some groups of people who are more likely to be at risk of low returns, such as low earners and today’s older people. 
3. Increase the trivial commutation limit to allow more individuals to take small amounts of pension saving as a lump sum. 
4. Allow individuals to have a limited amount of pension income, without it affecting their entitlement to means-tested benefits. This option is often referred to as a pension income disregard, because a limited amount of saving is disregarded for the purposes of calculating entitlement to means-tested benefits.

B&CE Benefit Schemes sponsored the PPI to provide an independent assessment of the option for increasing the suitability of pension saving: the introduction of a 'pension income disregard'. This is a scoping paper, which aims to identify the broad advantages and disadvantages of a pension income disregard. If it were decided that the disregard should be taken forward, further analysis would be needed to understand all the implications.

Chapter one gives some background to a pension income disregard and sets out the possible advantages and disadvantages.

Chapter two analyses the returns that individuals could receive from saving in Personal Accounts.

Chapter three presents initial projections of the costs of this version of the disregard and its impact on the numbers entitled to Pension Credit.

Chapter four discusses the options for how the capital and pension income disregard could interact and whether it is possible to align the two disregards fully.

Chapter five looks at next steps and how a disregard could be taken forward.

Executive Summary