Logo Text

Pensions headache ‘likely to get worse’

April 2012

March 02 2012,
by Stewart Hood -(Arcadia Financial Solutions)

A PLYMOUTH financial adviser has raised concerns about how the UK will pay for it’s ageing population as new figures show the numbers saving into a personal pension have hit a record low. The Office for National Statistics (ONS) has revealed the proportion of UK employees enrolled in workplace pension schemes has fallen below 50 per cent for the first time since records began in 1997.

The figures also highlight the gulf between public and private sector workers. While 48 per cent of workers are now saving into a workplace pension scheme,  down from 55 per cent in 1997 – just a third of private sector workers are part of a company scheme, compared to 83 per cent of public sector employees.

The numbers are likely to be a concern for the Government and the comments of Stewart Hood, director of the Plymouth office of Arcadia Financial Solutions, show ministers are right to be worried.

Mr Hood describes private sector pension take-up as having undergone a “seismic shift” and predicts the pension “headache” will only get worse. “The headache of how the UK is to pay for its ageing population is growing rapidly,” he said. “Public sector pensions have held up in terms of numbers but there has been a seismic shift in the private sector.  This is caused by three main reasons: economic hardship, reduction in the number of final salary schemes, and a lack of confidence in financial products”.

Mr Hood, a chartered financial planner, said the Government is responding by bringing in compulsory enrolment of workers, but feels this has been “watered down”. Under the Government’s plan all workers aged 22 and older will be automatically enrolled into a retirement savings plan offered by their employer from October this year. Ministers hope this will create nine million new savers, although it has been predicted that up to three million employees will opt out immediately.

Under this auto-enrolment scheme, companies must pay a minimum of one per cent of every employee’s salary into a pension, rising to three per cent by 2017. Workers must pay a portion of their salary too, phased in over five years, starting at one per cent and rising to four per cent by 2017. The Government will offer a further one per cent in tax relief.

However Mr Hood said: “This legislation was watered down in the recent Autumn Statement with smaller employers likely to be exempt from the legislation. As it stands at the moment, there is therefore likely to be a tripartite system in respect of pension contributions – public sector, large employers and small employees”.

So we have a system where life expectancy is rising year-on-year, pension contributions similarly declining year-on-year and a lack of appetite to address the problem. “The headache can only get worse”.

By: Stewart Hood

Leave a Comment

Previous post:

Next post: