Tim Jones, CEO of the Personal Accounts Delivery Authority, outlines why 2012 is an important year for pension savers.

Government estimates show that over seven million people are not saving enough to achieve a reasonable income in retirement.

With an ageing baby-boom generation, increasing life expectancy, seriously declining workplace pension participation and falling birth rates, millions of people are going to face inadequate pensions in retirement.

In 2002, an independent commission – the Pensions Commission – was set up under the chairmanship of Lord Turner to review the UK pension system. It recommended a number of reforms, including enhancing the state pension system to make it fairer and less means tested, raising the state pension age and increasing the level of private pension saving by introducing automatic enrolment of employees into a workplace pension and mandating a minimum employer contribution. Employees would, however, retain the right to opt out.

The government is therefore implementing an integrated package of reforms to help improve retirement outcomes in the future, based on the Pensions Commission recommendations. From 2012, there will be a new employer duty whereby employers will be required to automatically enrol employees into a workplace pension and make a minimum contribution.

The employer and employee contribution, taken together with tax relief, mean that most employees can eventually expect pension contributions of at least eight per cent of qualifying earnings, thereby encouraging and improving the incentive to save.

There is no doubt that these are radical reforms, aimed at improving retirement outcomes for millions of people over the next century. Without them, the choices are stark – millions of poorer pensioners or an unrealistic tax burden on those in work to support the increasing number of those who have retired.

The Personal Accounts occupational pension scheme is a key element of the reforms, and the Personal Accounts Delivery Authority (PADA) is the body set up by the government to oversee the design and implementation of this new scheme.

The Pensions Commission identified a need for a low-charge, universally accessible pension scheme for low to median earners who do not have access to good-quality pension provision.

The Personal Accounts scheme is therefore being introduced alongside existing provision to meet that need. It will have a public service obligation, which means it must accept any employer that chooses to use it.

Personal Accounts will be a low-charge, trust-based pension scheme, run by a not-for-profit Trustee Corporation with high standards of governance. Low charges are important to ensure that low to moderate earners can participate in a workplace pension and keep as much of their pension savings pot as possible to convert into income at retirement.

The scheme is being specifically designed for this group and we, at PADA, remain fully committed to producing a scheme that will operate in the best interests of members.

To this end, we are consulting widely with the industry on issues such as accessing savings in retirement, management charges and investment strategy, with the latter set to be launched in the next six weeks.

PADA recognised the importance of creating a scheme that is both understandable for consumers and easy to administer for employers. We envisage that the Personal Accounts scheme will be an e-business, in order to improve convenience, speed and quality of service delivery, reduce instances of error and rework and build a modern, flexible and scalable scheme.

However, there will be some circumstances when users will need to access more traditional services such as the telephone. PADA will ensure that non-e-services are available where appropriate.

Our aim is to help facilitate a culture of pension saving among a population that has not previously been engaged and to allow people to take some responsibility for their future.

Millions stand to benefit from the successful introduction of the Personal Accounts scheme. It is a critical component of the reforms that will fundamentally change the private pensions landscape.

Everyone at PADA is committed to playing a part in ensuring that millions more people can save for a pension and achieve a better outcome in retirement as a result.