Pension gap widens between public and private sectors

There has been a “seismic collapse” of private sector pensions and fresh incentives are needed to boost retirement savings as auto-enrolment nears, a report warns today.

Government action to reinvigorate workplace pensions was called for by the Association of Consulting Actuaries (ACA), which argued there is a growing gulf between those in the private and public sector.

Nine out of ten private sector defined benefit schemes have been shut to new entrants and four out of ten are closed to future accrual, according to its study entitled Workplace Pensions: Challenging Times.

Just more than a quarter of employers (26 per cent) have budgeted for the cost of workplace pension auto-enrolment, which is being phased in from October, the report found.

It tracked a growing trend among private sector employers of all sizes to review existing arrangements and, for many, to find ways to cut pension costs.

Around three-quarters of employers said they are likely to auto-enrol all employees in existing workplace pension schemes but 27 per cent are likely to review existing pension benefits to offset the cost of higher scheme membership.

Overall, a fifth of employers are looking to decrease their pension spend, with 14 per cent aiming to increase theirs.

The survey took responses from 468 employers, running more than 560 pension schemes with combined assets topping £114 billion. At present, some nine out of ten employers say staff retire at age 65 or younger.

But in less than a decade, close to four out of ten expect the retirement age to be 67 or later, and one in six employers expects it to move to between 68 and 70 by 2020.

ACA chairman Stuart Southall said: “Auto-enrolment should widen private sector pension coverage, particularly where no pensions are offered at present, but the fact that introduction for smaller employers was delayed, because of the deteriorating economic climate, is discouraging.

“Any fresh initiative to boost pension savings will require an easing in regulatory controls and, in all probability, new incentives to encourage employers and employees to take up the challenge. The government needs to help private sector employers to find new ways to boost pension savings over the mid to longer-term so public sector pensions are not ‘far better’.

“A more level playing field between private and public sector pension provision is a sensible aim but it is possible current government attempts to achieve this have already been undermined by the seismic collapse of private sector pensions and, in both sectors, it seems probable that the later the cure the stronger will have to be the medicine.”

Around eight out of ten private sector employers supported recommendations that public service pensions should be scaled back and that member contributions should increase, while nine out of ten agreed that the pension age in such schemes should increase to the State Pension Age, the ACA said.

A spokeswoman for the Department for Work and Pensions, headed by Iani Duncan Smith said: “Automatic enrolment is the most radical action taken by any government to help address saving for retirement. It will enable millions of people to save, many for the first time.”