The Government issued the Pensions Bill today

Edited by the Insidemoneytalk editorial team Dec 7, 2007

which contains the detail needed to bring Personal Accounts into force from 2012.

Chapter 4, section 53, paragraph 3 enables the Government to make regulations permitting contributions in excess of the statutory maximum (£3,600 indexed).

Previously the Government said there would be an annual limit on the amount of money which could be paid into a personal account.

This was to be £3,600 although this would be indexed from 2005, meaning that it is likely to be around £5,000 by 2012.

The Government had also said there will be a higher limit in the first year of personal accounts of £10,000.

This would allow people, for example, to roll some other savings into personal accounts when they come into existence.

The reason the Government decided to have a cap on contributions is to ensure personal accounts are targeted at their intended audience - those low and medium earners who are not currently saving for their retirement.

Now the Government has decided to allow lump sums to be paid in addition to this indexed contribution cap of £3,600.

In other words the cap will only apply to regular payments with unlimited one-off payments being allowed at any time.

Transfers from other pension arrangements will not be allowed until at least 2017 so these lump sums will need to be paid from other savings or income.

John Lawson, Head of Pensions Policy, Standard Life Assurance Limited, said: 'As there is no room for independent financial advice in personal accounts, and the Government is relying on apathy to build savings, it seems unclear who will encourage or help individuals who want to pay additional amounts.

In addition it is unlikely that significant numbers of the target market for personal accounts will want to save more than £3,600 a year.

Financial advisers will need to take this into account when advising where lump sum contributions should be invested.

This means personal accounts will stray even further into the territory of existing pensions, both group and individual.