The government has announced it is to adopt proposals to establish a centrally administered pension system.

Under the new scheme up to 10 million people will be automatically enrolled into a low cost pension savings account from 2010 to which their employer will contribute a minimum of 3 per cent. Workers will also receive tax relief at 1 per cent.

The Government estimates that the long-term costs for personal accounts will be around 0.3 per cent of funds under management, or less. But savers will only be able to choose between a limited number of funds.

Transferring into or out of personal accounts from or to existing pension schemes will not be permitted and an annual limit will restrict the level of contributions an individual can put into their account. This will be £10,000 in the first year and £5,000 thereafter until it is reviewed in 2020.

Secretary of State for Work and Pensions John Hutton said: "These reforms are designed to fill a gap in the existing market - we want them to complement the existing market not compete with it.

"So, alongside the creation of the new personal accounts, we will take action to support existing pension provision."

Jupiter, a fund manager has broadly welcomed the proposals but it is concerned that there is little or no room for advice in this product. Edward Bonham Carter, joint chief executive for the group said: "People’s financial circumstances differ considerably and many are worried about making poor or inappropriate investment decisions. It is important that NPSS savers see these savings as their own provision for retirement and are encouraged to actively engage in the decision making process as the investment choices they make will affect the quality of their lives in retirement. Many people may feel they need help with these decisions."

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