The government risks significantly overestimating the amount of new saving that will be generated by personal accounts and instead much of the money invested will be redirected savings from both the target and wider savings market according to leading long-term savings company AEGON UK.

In its response to the personal accounts White Paper, AEGON sets out its analysis of research, by Deloitte, into the savings habits of the personal accounts target market.  The analysis shows people in this target market have been saving an average of £1,600 a year, just under nine per cent of average income.  Around half the target group, just over 4 million people, claimed to be making average pension contributions of just under £1,000 each year, equivalent to five per cent of income.

The government prediction that 60 per cent of the estimated £8bn a year personal accounts savings will be new money assumes relatively low current average savings levels in the target market.  AEGON believes this figure is optimistic and calls on the government to work with the industry to find ways to increase the level of new saving.  Government estimates of new saving also assume ‘reasonably low’ levels of opt out.  However the government accepts that up to half of people may choose to opt out of personal accounts on the grounds of affordability. 

AEGON suggests the government could minimise this risk by designing auto-enrolment to enhance existing pension saving rather than encourage switching.  Making employer contributions on top of existing pension saving would increase the chance of boosting overall pension saving.  AEGON also calls on the government to set a simple good scheme test to encourage employers to maintain existing good pension scheme provision.

Rachel Vahey, head of pensions development, says:

“The government risks failing in its key test of pension reform, which is to boost overall retirement provision.  Rather than stimulate new saving people who already save will redirect savings into personal accounts and those who don’t will most likely opt out.

If this happens a significant number of people, who are currently on target for a decent income in retirement, could end up a lot worse off.  Before forging ahead we urge the government to define more carefully the target market for personal accounts and to analyse in detail its savings habits.  Only when the government has done this can it set a strategy for getting the right people to save more money.”

-Ends-

Notes to editors

• The analysis is based on data from Deloitte’s Wealth and Portfolio Choice (2002) study of UK savings habits.  The AEGON analysis segmented the data to identify those in the government's target market for Personal Accounts. This is those without access to a good occupational pensions or who have opted out of a good scheme.
• Hansard 29 Jan 2007 : Column 98W. The figure of 60% of money saved into personal accounts will be new money is the mid point of a range of 50-70%.
• Hansard 5 March 2007 : Column 1738W. The government is planning on personal account opt out levels of between 20% and 50%.
• AEGON UK has assets under management of around £47 billion and employs around 4,000 staff. AEGON is part of the AEGON Group, which is one of the world’s largest listed insurers and has assets around Euro 359bn (£250 billion).

For further information

Margaret Robertson
PR Manager
T. 0131 549 6798 | M. 07740 897527
margaret.robertson@aegon.co.uk