US-style pensions could boost payouts 30%, says Treasury

The Government has launched a fresh attack on high charges and poor value in the pensions industry with a scheme it says could boost people's final pension pots by 30 per cent. The scheme, called an individual pension account (IPA), aims to increase flexibility and transparency for consumers when it comes in next April, at the same time as low-cost stakeholder pensions.

The Government has launched a fresh attack on high charges and poor value in the pensions industry with a scheme it says could boost people's final pension pots by 30 per cent. The scheme, called an individual pension account (IPA), aims to increase flexibility and transparency for consumers when it comes in next April, at the same time as low-cost stakeholder pensions.

Melanie Johnson, the economic secretary to the Treasury, launched a consultation document on IPAs yesterday, saying: "The types of people who will be able to save as much as 30 per cent are those who change job frequently or who take breaks from their career, including working mothers who take time off to raise a family. The saving comes from the charges that traditional pensions schemes would levy under those circumstances."

The system, based on the s401k scheme that has boosted pensions savings in the US, will allow people to bypass life offices, traditionally seen as providers which levy high charges while not disclosing how much their customers have in their fund.

IPAs will allow people to invest directly in investment trusts or unit trusts, giving them the chance to see clearly how their investment is performing. They will be available for people with personal pensions or company pensions that have defined contributions, including stakeholder pensions. They will not be available for people in defined benefit schemes. In contrast to traditional pension plans, which offer restricted choices about what funds your pension can be invested in, IPAs are intended to give people far more choice of fund and the power to move money between funds if they feel one is under-performing.

While some investment trust companies already provide pensions, the new system removes the stamp duty reserve tax, which is levied whenever you buy or sell units of a unit trust. The Government hopes this will make it easier for fund managers to enter the market and challenge the traditional life companies.

Jeff Mushens, director of Sales & Marketing Opportunities at M&G, the fund management arm of Prudential which has recently launched a personal pension, said he expects his company to launch an IPA as soon as the final details are announced.

"We think its excellent news. The Government view is that transparent products encourage people to invest. IPAs are a good attempt to make it as easy to put a unit trust in a pensions wrapper as it already is to put one in an ISA or PEP." However, reaction in the investment industry was mixed last night, with some questioning whether IPAs will change pensions provision significantly.

Nick Hodges, head of pensions at Gartmore who attended the Treasury briefing yesterday, said: "The Treasury says that IPAs will be 'SIPPs for the masses'. We continue to keep a watching brief on IPAs, but we can't really see what they add to the ball game."

SIPPS are the self invested pension plans, which allow you to invest directly in shares listed on any recognised stock market around the world.