The Association of Consulting Actuaries (ACA), the representative body for UK consulting actuaries, have argued the gap between private and public pensions is widening.
ACA research shows nine in 10 private sector defined benefit (DB) schemes, often known as final salary pensions, have been shut to new entrants and four out of 10 closed to future accrual. The survey which involved 468 employers running more than 560 pension schemes highlighted the decline of defined benefit pension schemes.
The survey also considered the effects of the government’s plans for auto enrolment.
The private sector contains 26 million employees and the ACA said a third of large employers are considering cutting their pension costs with the introduction of automatic enrolment looming.
Automatic enrolment, which will begin in October 2012, will help millions of workers with larger firms which do not currently operate pension schemes, as employers will be forced pay into the pensions on behalf of their staff.
Smaller firms were to have started the process of auto enrolment from 2014; however this has been delayed by the government and will now start a year later for organisations with less than 50 employees.
The employer’s contribution means pensions will build up more quickly. Rather than the employee having to save on their own, the employer’s contribution will help build the value of the pension more quickly, tax relief from the government will also help.
There has however been concern amongst some pension experts that auto enrolment will actually harm some pensions with some employers likely to close their defined benefit pensions to help meet the cost of auto enrolment.
ACA wants bold government action
ACA chairman, Stuart Southall said: “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.”
He added: “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’s 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.”
A spokesperson for the Department for Work and Pensions also commented: “Automatic enrolment is the most radical action taken by any government to help address the question of saving for retirement.”
They continued “It will enable millions of people to save, many for the first time. We will continue to work with industry as we bring this forward as it is in everyone’s interest to help people save for their retirement.”