Memorandum submitted by Which? (PE 23-A)


Lump sum contribution limit and transfers in and out

Amendments to Clause 53

Amendment 30: Page 26, line 1, leave out subsection (3)


Amendment 58: Page 26, line 6, leave out subsection (5)


Amendment 29: Page 26, line 1, leave out subsection (3) and insert 'There shall be an absolute prohibition on transfers between the pension scheme established under section 50 and other pension or savings schemes and jobholder contributions shall be limited to 3600 in any one year'




Which? opposes these amendments. They have been tabled by the Opposition frontbench (amendments 29, 30 and 58).

The effect of these amendments would be to limit the flexibility of the scheme to allow an additional lump sum limit in addition to an annual limit or to allow transfers in or out. It would also mean that a higher annual limit of 10,000 in the first year would not be permitted; this could undermine saving in the run up to 2012.



Which? welcomes Clause 53 as published at 1st Reading. The clause gives the Secretary of State power to specify that additional payments may be made into a Personal Account in addition to the normal annual contribution limit.

This will allow the Secretary of State to make regulations introducing a lump sum contribution limit, a higher limit in the first year (10,000 has been suggested) and to permit transfers in and out.

Which? welcomes that a review of whether to allow transfers in and out of the personal accounts scheme will be made after 5 years (in 2017) but Which? believes the Government should introduce a lump sum contribution limit now to allow consumers to pay in lump sums such as inheritance, redundancy payments or bonuses. This would be separate from the annual limit. It will help people save in line with their aspirations for a comfortable retirement.

During Public Bill Committee oral evidence session on 15th January, the issue of transfers out was raised with regard to migrant workers[1]. The DWP has already indicated that transfers in of the cash transfer value of people who leave qualifying schemes before reaching the end of the vesting period (commonly 2 years) will be permitted[2]. We seek clarification that this power will be exercised before 2017. Both examples show that the powers given in Clause 53 to allow transfers in and out are necessary.


Consumers want flexibility: Which? research amongst the target group for Personal Accounts revealed:


70% think there should be flexibility about how much can be paid into their Personal Account

52% would be put off saving more by the hassle of finding and opening a separate pension plan.


Affordability: Consumers do not save at a constant rate over the course of their lives. There will be significant periods of people's lives when they are not able to save, whether because they are clearing debts, buying a house or caring for children. Conversely, there will be periods when people will have more money to put aside or they receive a lump sum from an inheritance or bonus that they would like to pay into their pension.

Limited Operational cost: In discussions with 'Paymaster' and 'International Financial Data Services', (two of the companies working on the potential design of Personal Accounts) we have been advised that a lifetime lump sum limit separate to other contributions would be operationally feasible and the additional cost would be minimal.

Support the Government's objectives for pension tax simplification: An additional lump sum contribution limit will also help achieve one of the key benefits of the Government's simplified pension tax regime, namely that "those on modest earnings who leave their pension savings late will not find that they are restricted in the amount of extra contributions they can make each year".[3]

Efficiency: Most consumers may have a desire to keep their pension saving in one place to save hassle and administration. It is in both individuals and pension providers' interests to avoid a proliferation of people with small pension pots.

Lack of alternative products: Those willing to save occasional additional lump sums into a pension outside Personal Accounts are unlikely to be viable customers for the financial services industry.

January 2008

[1] Pensions Bill, Public Bill Committee, 15/1/08, col 50-52

[2] Pensions Bill Impact Assessment: 5/12/07, page 84, paragraph 3.78

[3] HM Treasury, Simplifying the taxation of pensions: the Government's proposals, November 2003