Citywire for Financial Professionals
Stay connected:

View the article online at

Private and public sector pension gulf set to widen

There has been a 'seismic collapse' of private sector pensions, Association of Consulting Actuaries says.

Private and public sector pension gulf set to widen

The ever-widening gulf between private and public sector pension schemes is set to grow further as a result of the worsening economic climate, according to new research.

There has been a 'seismic collapse' of private sector pensions, according to a new report by the Association of Consulting Actuaries (ACA).

Nine out of 10 private sector defined benefit pension schemes – which offer employees a guaranteed pension based on their earnings regardless of investment returns made – are now closed to new entrants, with four out of 10 closed to further contributions. More are expected to close this year.

Even with the planned changes to public sector pensions – which will see pensions based on 'career average' earnings rather than final salary, employees pay more and retire later – prime minister David Cameron has said five million public sector workers will still end up with a 'far better' pension deal than those in the private sector.

Stuart Southall, chairman of the ACA, said: ‘A more level playing field 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’.    

‘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,’ he added.

And while auto-enrolment, due to start this year, should widen private sector pension coverage, Southall acknowledged, the ACA report, which gathered responses from 468 employers during the summer, also highlighted employers' lack of preparation for the scheme.

Under auto-enrolment employers will be legally obliged to opt employees into their workplace pension or another qualifying scheme such as Nest (National Employment Savings Scheme) – at present less than 50% of employees belong to their company's occupational pension scheme in some companies.

The government hopes Nest will eventually reduce the government’s spending on the elderly and ensure that people are properly provided for in retirement.

However, only just over a quarter of employers have budgeted for the cost of introducing auto-enrolment, with this figure falling to one in seven amongst employers with 49 or fewer employees.

What's more, the fact that the government has had to delay the introduction of auto-enrolment for smaller employers because of the deteriorating economic climate is also discouraging, Southall said.

At least the government is at last waking up to the reality of how low morale is in the private sector pensions world, however, and is preparing to produce a paper examining how workplace pensions can be ‘reinvigorated’, Southall added.

9 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Jan 03, 2012 at 12:50

(prime minister David Cameron has said five million public sector workers will still end up with a 'far better' pension deal than those in the private sector)

But not as good as yours eh Dave?

What has become of the once mentioned reform of MP's pensions?

report this


Jan 03, 2012 at 13:00

There's no confidence because many of us who had the misfortune to invest in personal pensions 25 years ago were misled and overcharged. Returns have been dismal, (much worse than the FTSE might indicate) because institutions creamed off huge charges ; there's the Equitable Life scandal, Standard Life Pensions and the Sterling fund debacle all before you start thinking about annuity rates. City guys and brokers have been much, much too greedy. And reckless. And negligent. There's no trust and less protection for investors than there is for the sale of dog food.

''In its report "Building the consensus for a People's Pension in Britain", the RSA discovered that:

A huge proportion of our pensions disappear in fees – with charges swallowing up to 40 percent of the value of the pension.

If a typical Dutch and a typical British person save the same amount for their pension, the Dutch person can expect a 50 percent higher income in retirement. '

Years ago I was responsible for introducing a contributory pension scheme for low paid workers in a charity - and I bitterly regret wasting everybody's money, though at the time I acted on the best advice available.

report this


Jan 03, 2012 at 13:43

JG, on what basis do you arrive at the Dutch Vs British pension return?

report this


Jan 03, 2012 at 14:02

Hello LouisV

See Turner Report, A New Pensions Settlement for the

21st Century, 2005, p7

See Bikker and de Dreu, Operating costs of Pension

Schemes, from Steenbeek and van der Lecq, Costs and

Benefits of Collective Pension Systems, Springer 2007

See Almeida and Fornia, Better Bang for the Buck, 2005

report this


Jan 03, 2012 at 14:12

I don't dispute we have a serious situation here, but having been invested in various pension schemes for almost 30 years, I do recall similar squealings in the past, followed by a complete reversal in sentiment resulting in firms taking pension holidays, as the stock market soared in the late 90s. I suspect a lot of the 'pain' being forecast is due to poor stock market performance of late and with luck, the gloomy forecasts will evaporate once we hit the next boom in perhaps 5-10 years from now. I do believe that current tough conditions are positioning businesses the world over for an unprecedented boom in the not-too-distant future, so my suggestion would be to plan accordingly.

report this

Keith Snell

Jan 03, 2012 at 14:58

I am living on a pension provision of my own part of which was extremely badly administered by HSBC, I doubt they are the only sinners, The point about investment mis-management is easily made as when I eventually decided to take the bull by the horns and manage my own SIPP I found that my annual investment return was substantialy higher than that by HSBC. Indeed I recently attended a meeting with HSBC extolling the virtues of their investment record and quoting returns that missed out the poor years altogether, to add insult to injury they then proposed a £400 initial charge when their own product bought from any number of others would have come free of intial charge. It is high time the FSA started to regulate such poor performance rather than defending the industry it is supposed to regulate.

report this

Michael Stevens

Jan 03, 2012 at 15:02

All Public Pensions should have the same benefits, MPs, judges, police, civil servants etc. Rate 1/65, 50/50 contribution so members will take an interest in the costing, Retirement Age -State pension Age.Be fair to all career average earnings.

Keep it simple. Micheal Stevens

report this


Jan 08, 2012 at 15:17

Michael Stevens - Dream on!

Do you realise what percentage of salary a 50/50 contribution split would produce? Shell has just shut its final-salary scheme because employer contributions reached 31% of salary. Say Shell employees paid 5%, so a 50/50 split would take up 18% of salary. Even changing to career average earnings wouldn't drop the employee contributions below 12%. No public-sector employee would agree to it.

As for the unions . . . . .

report this

Michael Stevens

Feb 01, 2012 at 15:09

Employees should be offered a Money Purshase scheme. 50/50 contribution up to 10% by employer allowing members to contribute more if they wish.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts

In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.


The hedge fund that's beaten Woodford twice

by Daniel Grote on Apr 25, 2018 at 16:00

Sorry, this link is not
quite ready yet