Pension gulf continues to grow

The gulf between private and public sector pensions is continuing to grow according to a new survey from the Association of Consulting Actuaries (ACA).

The survey of more than 450 employers found that five million public sector employees are being offered pensions that are 'far better than those in the private sector', while more and more existing private sector defined benefit schemes are closing to new entrants.

As a result, the ACA is calling on the Government's promised paper on 'reinvigorating workplace pensions' to be bold.

Auto-enrolment, which is being rolled out from October this year, is designed to help employers and employees to and ensure that pension funds are built up, but so far the Government has been forced to delay roll out for smaller firms.

It is also feared that businesses will be downgrading their existing pension offering in order to counteract the cost of auto-enrolment - the ACA survey found that 27 per cent of those surveyed are planning to do this.

The survey found that just over a quarter of businesses have budgeted for the cost of workplace pension auto-enrolment, which will require employers to contribute at least of three per cent of an employee's salary.

Commenting on the survey results, 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.

"Set against this, the Government is at last waking up to the reality of how low morale is in the private sector pensions world and we understand it is looking to produce a paper in the New Year examining how workplace pensions can be ‘reinvigorated'.

"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 as 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."