The gulf between private and public sector pension provision is growing, according to research by the Association of Consulting Actuaries (ACA).
The 2011 Pensions trends survey found that nine out of ten private sector defined benefit (DB) schemes are now closed to new entrants, and four out of ten closed to future accrual, half of which closed in the last year.
A quarter (25%) of private sector employers are now looking to buy-out, or buy-in, all their DB scheme liabilities in the next five years, rising to 40% within a decade.
The survey found that just over a quarter of employers have budgeted for the cost of the workplace pension reforms, which include auto-enrolment, which commence in October 2012.
While around three-quarters of employers are likely to auto-enrol all employees into their existing workplace pension schemes, 27% 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 survey respondents feel employers should share or take on a majority of these pension risks.
Overall, a fifth of employers are looking to decrease their pension spend, while 14% are aiming to increase spend.
Despite a near doubling in employer pension contributions over the last decade, almost a third of employers (31%) expect to take more than ten years to remove their DB scheme deficits.
Just over a quarter of employers (26%) have budgeted for the costs of auto-enrolment, with this falling to one in seven among employers with 49 or fewer employees. On average, budgets are based on estimates of 25% of employees opting-out of workplace pensions following auto-enrolment, but with smaller employers estimating between 30-40% of employees will decide to opt-out.
Eight out of ten private sector employers support the recommendations made by Lord Hutton that public service pensions should be scaled back (85%), that member contributions should increase (79%) and that the pension age in such schemes should increase to the state pension age (91%).
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’.
“A more level playing field between private and public sector pension provision is clearly a sensible aim but it is possible 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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