Action urged as private sector pension schemes ‘collapse’

The study by the Association of Consulting Actuaries (ACA), found a growing pensions divide between workers in the private and public sector.

Nine out of 10 private sector defined benefit schemes have been shut to new entrants and four out of 10 are closed to future accrual, according to the study entitled Workplace Pensions: Challenging Times.

Just over 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.

Auto-enrolment places a legal duty on employers to automatically enrol all workers over 22 but under state pension age into a pension scheme, unless their rate of earnings is below the income tax threshold.

An employer can use its own scheme, provided it meets certain requirements.

The Government has also set up a central pension scheme, NEST, which any employer can use to meet its auto-enrolment duties.

According to Jade Murray, a pensions partner at law firm Addleshaw Goddard, workers can opt out of auto-enrolment by serving notice on their employer.

The ACA survey found that many private sector employers of all sizes were reviewing their pension arrangements. Many are trying to find ways of cutting pension costs.

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

Overall, a fifth of employers are looking to decrease their pension spending, while 14 per cent aim to increase spending, the survey found. The survey took responses from 468 employers, running over 560 pension schemes with combined assets topping £114bn.

At present, some nine out of 10 employers say their employees retire at age 65 or younger.

However, in under a decade, close to four out of 10 expect the typical retirement age to be 67 or later, and one in six employers expects the typical retirement age to move out to between 68 and 70 by 2020. ACA chairman Stuart Southall said: “Auto-enrolment, beginning in late 2012, should widen private sector pension coverage, particularly where no pensions are offered at present, but the fact that recently the Government had to delay its introduction for smaller employers, because of the deteriorating economic climate, is discouraging.”

He continued: “Inevitably any fresh initiative to boost pension savings will require both an easing in regulatory controls and, in all probability, new incentives to encourage employers and employees to take up the challenge and opportunities.

“The Government needs to be bold in helping private sector employers so they can consider 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 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.”

Around eight out of 10 private sector employers supported recommendations that public service pensions should be scaled back and that member contributions should increase, while nine out of 10 agreed that the pension age in such schemes should increase to the State Pension Age, the ACA said. A large number of Yorkshire employers have scrapped their final salary pension schemes. In October 2010, Leeds-based supermarket chain Asda announced that it was axing its final salary pension scheme. Asda was following Bradford-based Morrisons, which closed its final salary scheme in 2009.