Recent figures show that savings in the UK have hit an all-time low of just 1.1% of GDP. With the ageing population of baby boomers, the demands on state finances will increase dramatically in the next 10 years. In an attempt to deal with the impact of this, the government is launching the Personal Account in 2012.

The Personal Account is a new type of pension. When launched, all employees will have to place 4% of their earnings into the account each year, with the employer having to pay an additional 4%. This amounts to a compulsory pension scheme funded by employees and employers.

The new Personal Account can be opted-out of, but it would be difficult to see the government looking favourably on people doing this.

The payments will clearly be a drain on employers, who will effectively have their wage bills increased overnight by 4%. There will be a drain on employees also, who will see their pay packets fall overnight.

While this additional saving will probably be a good thing (unless the money that you  save reduces any state benefits to which you may be entitled in the future), initially it will be hard to budget for and so we strongly recommend that people start saving 1% of their salary into pensions this year, 2% next and 3% in 2010. By the time we reach 2012 you will be used to saving this amount, and will also have set aside a further tidy sum for yourself.