By Marcus Leach
According to a report published by the Association of Consulting Actuaries (ACA) there has been a 'seismic collapse' in private sector pensions, and the gap between private and public pensions is widening.
Key ACA survey findings are:
- Nine out of ten private sector defined benefit schemes are now closed to new entrants and four out of ten closed to future accrual (half of these closing in the last year alone.
- 25% of private sector employers are now looking to buy-out (or buy-in) all their defined benefit scheme liabilities in the next five years, rising to 40% within a decade.
- Only just over a quarter of employers have budgeted for the cost of workplace pension auto-enrolment which begins in stages from October 2012.
- Whilst around three-quarters of employers say they are likely to auto-enrol all employees into their existing workplace pension scheme(s), 27% say they are likely to review their existing pension benefits to mitigate the cost of higher scheme membership.
- In all three areas of investment, longevity and inflation risk, at least half of the employers responding to the survey say that employers should share or take on a majority of these pension risks.
- A clear majority of employers currently operating defined contribution schemes are presently reluctant to move to large, multi-employer schemes.
Whilst the ACA survey report notes that few small employers are in a position to level-down pension provision as most offer no workplace pensions at present, the survey found a third of larger employers are considering such a move. The worsening economic climate since the summer has heightened employer concerns over rising pension costs, says the ACA.
Conducted over the summer, the ACA survey is one of the country’s largest surveys of employers of all sizes, gathering responses from 468 employers, running over 560 pension schemes with combined assets exceeding £114 billion.
“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," ACA Chairman, Stuart Southall said.
“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 preparedness of some employers to share risks, echoed by our survey, and the endorsement of this approach by the recent Workplace Retirement Income Commission, needs to be followed up with some urgency as part of this reinvigoration agenda.
“However, it is very difficult to see what can be done to turn the tide in the near-term given the austerity backcloth, coupled with the economic woes we are likely to face for a number of years to come.
“Inevitably any fresh initiative to boost pension savings will require both an easing in regulatory controls and, in all probability, new incentives to encourage employers and employees to take up the challenge and opportunities. 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 medicine.”
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