Private sector pensions in seismic collapse, says ACA
There has been a "seismic collapse" in private sector pensions, and the gap between private and public pensions is widening, a report warns.
The Association of Consulting Actuaries (ACA) says that nine out of 10 private sector defined benefit schemes are now closed to new entrants.
The ACA wants bold government action to reinvigorate workplace pensions.
Automatic enrolment, set to begin later this year, would enable millions of people to save, the government said.
But Stuart Southall, chairman of the ACA, said that while automatic enrolment should widen private sector pension coverage, "the fact that recently the government had to delay its introduction for smaller employers, because of the deteriorating economic climate, is discouraging".
Defined benefit schemes give members a guaranteed pension, based either on their final salary or their average pay over the length of their career, depending on the scheme.
There are some 23 million workers in the private sector in the UK, and six million in the public sector.
The ACA said that while more than five million public sector employees enjoyed "open" defined benefit pension schemes, fewer than two million workers in the private sector do so, and were now in largely "closed" schemes.Rising costs
The gap between private and public pensions is widening, despite efforts to rein in the cost of public sector schemes. That's because guaranteed, salary-linked pensions from companies are withering so much faster.
The finding that 90% of these private schemes are closed to new entrants is nothing new.
On top of that, though, more existing members are being told they can't contribute more and build up further pension.
Employers aren't just pulling up the drawbridge. They are putting those already inside the keep on iron rations.
And the future looks even bleaker, now that smaller firms are being allowed to delay the start of Auto-Enrolment.
Under the new rules they were supposed to start signing up staff automatically to inferior schemes where there's no guaranteed level of pension.
But the government is worried that bosses simply won't be able to afford to contribute.
The ACA, whose members advise pension schemes, surveyed 468 employers who run 560 pension schemes.
As well as those private sector defined benefit schemes closed to new entrants, it found that four out of 10 are now closed to future accrual, meaning that existing staff cannot build up those pensions.
The ACA's estimates of how many schemes are closed to new joiners, and also to existing staff, are even more dramatic than those of a recent survey from the National Association of Pension Funds (NAPF).
In December the NAPF found that 23% of pension schemes were now closed to more contributions by existing staff, and 81% were closed to new joiners.
Stuart Southall of the ACA said the increasing number of closures was not just due to people living longer, but other factors which had made the schemes more expensive to run.
"Mandatory levels of indexation of benefits, gradually improved benefits for people who leave early, and then a heightened level of protection, comes with a cost," he said.Automatic enrolment
Pension schemes explained
- Final-salary scheme: Guaranteed pension based on earnings at the end of your career and length of service
- Career average scheme: Guaranteed pension based on your average pay over your career
- Defined contribution scheme: Determined by contributions and investment returns. Usually worth less than final-salary pensions
The ACA said that just over a quarter of employers had budgeted for the cost of workplace pension auto-enrolment, which is being phased in from October, while a fifth of employers were looking to decrease their pension spend.
Stuart Southall said an easing in regulatory controls and new incentives were needed to encourage employers and employees to boost pension savings.
"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 said.
"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 said: "Automatic enrolment is the most radical action taken by any government to help address the question of saving for retirement.
"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."