Private sector workers face an increasingly tough battle to secure adequate pension savings for retirement with new research showing that nine out of ten private defined benefit schemes have closed to new entrants with more set to follow.
Employers cutting costs
While more than five million public sector workers continue to enjoy defined benefit pension schemes, private sector workers are facing up to the consequences of employers reducing the amount they contribute, as the economy continues to struggle.
A survey of 468 employers by the Association of Consulting Actuaries (ACA) revealed that four out of ten private sector defined benefit schemes are now completely shut to future accrual, with half of those closing in the last year.
Around a third of large companies indicated that they plan to reduce their pension outgoings, while 21% said they had seen an increase in members opting out of schemes in the last three years.
Forced to work longer
The big concern is that reduced contributions from both private sector employers and employees could lead to many people having to work into old age to secure adequate retirement funds.
Between October this year and 2016, auto-enrolment defined contribution pension schemes will be introduced, although only 26% of employers said they had budgeted for the costs of auto-enrolment.
About a third of private sector workers currently have any pension arrangements and smaller employers estimated that 30-40% of employees will decide to opt-out of the new schemes, as they struggle to spare the cash for contributions.
Call for Government action
The ACA survey found that 40% of companies believe that by 2020 staff will need to work until they are at least 67 due to a lack of savings.
Stuart Southall, ACA Chairman, 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 so public sector pensions are not ‘far better’.