Private sector pensions in crisis as employers cut costs

The Momentum UK Team 03 January 2012

The divide between private and public sector pension schemes is increasing according to a recent survey, with nine out of ten private sector defined benefit schemes now closed to new entrants.

The survey conducted by the Association of Consulting Actuaries also found that a around a third of large employers and a fifth of employers overall are looking to decrease their pension funds in the tough economic climate.

Just a quarter of companies prepared for auto enrolment

Just 26% of the the 468 employers surveyed are budgeting for the coming implementation of auto-enrolment. Although the introduction of auto-enrolment will not complete until 2017 many companies will need to start making changes as soon as October of this year.

Changes to pension law will mean that all employers will soon need to auto-enrol eligible staff members into a suitable form of pension scheme, and also offer the equivalent of 3% of pensionable earnings in pension contributions.

ACA chairman Stuart Southall explained:

"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."

The survey comes amid increasing fears that many individuals are not financially prepared for retirement with pension saving and investment at a low, and pension income prospects similarly poor. Last month the Department for Work and Pensions reported that only 38% of those at a working age are currently saving into a pension scheme, the lowest level for a decade.