The “seismic collapse” of private sector pension schemes means that the gulf with the public sector is only set to grow in today’s tough economic climate, a study has warned.
A survey among 468 employers undertaken by the Association of Consulting Actuaries
revealed that nine out of 10 private sector defined benefit schemes are now closed to new entrants, while two out of five are no longer open to future accrual. This means that existing staff are unable to build them up further.
There are some 23 million workers in the UK private sector and six million in the public sector. But the ACA said that, while more than five million public sector staff enjoyed “open” defined benefit pension schemes, the same was true of less than two million private sector workers.
Stuart Southall, the organisation’s chairman, said that the Coalition Government was “at last waking up to the reality of how low morale” was in the private sector pensions world and, as a result, intended to produce a paper exploring how workplace pensions could be “reinvigorated”.
But the body warned that any new initiative would need to be “bold” and include an easing of regulatory controls as well as new incentives to encourage employers and employees to boost pension savings over the mid- to long-term. The aim here was to ensure that private sector pensions did not fall even further behind those of the public sector.
“A more level playing field as between private and public sector provision is clearly a sensible aim, but it is possible that the 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,” Southall said.
Overall, the study indicated that a fifth of employers were looking to cut their expenditure on pensions, with the figure rising to a third among large organisations. Only 14% said that they intended to increase their investment.
To make matters worse, only just over a quarter have so far budgeted for the cost of workplace pension auto-enrolment, which begins a staged roll-out from October this year, with the figure falling to one in seven among employers with 49 or less workers. Where budgets have been set, these are based on estimates that 25% of staff will opt out, although small firms estimate that the figure will be between 30-40%.