ACA warns of private-sector pensions collapse
The private pension sector has suffered a ‘seismic collapse’ according to a survey by the Association of Consulting Actuaries (ACA).
The ACA revealed today that nine out of 10 private sector defined benefit schemes, which promise a pre-determined monthly benefit on retirement, have been closed to new entrants and four out of 10 are closed to future accrual.
In the current economic climate businesses are struggling to reduce costs and the survey found that a fifth of private sector employers are looking for ways to cut their pension spend.
The ACA’s 2011 pensions trends survey warns that the gap between private and public pensions is widening and the organisation is calling on the government to address the situation urgently.
While more than 5 million employees in the public sector can still join defined benefit pension schemes, fewer than 2 million private sector employees are now in these schemes, most of which are closed.
Stuart Southall, chairman of the ACA, 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 and public sector pensions are not far better.”
From October, workers will be automatically enrolled into their employer’s qualifying pension scheme, as part of the Government’s strategy to ensure private sector workers have a work-place pension.
However, the introduction of auto-enrolment for smaller employers was recently delayed because of the deteriorating economic climate.
Businesses with fewer than 50 employees may now not have to comment auto-enrolment until after the start of the next parliament in 2015.
Mr Southall said that the delay in introducing auto-enrolment for smaller employers was ‘discouraging’.
Following the ACA’s report, leading economists have joined the call for the Government to take action over private sector pensions.
Professor Brian Morgan of Cardiff Metropolitan University warned of the growing gap between public and private sector pensions, and called for the Government to address the increasing threat of poverty in old age.
“It is vital that more incentives are provided to encourage people to invest more in their pensions and other forms of saving for their retirement,” Professor Morgan said.
“What is needed urgently is tax relief for both employers and employees in ways that ensure that the Government provides a ‘matching’ contribution that tops up the savings of employees,” he suggested.
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