Existing Pension Schemes hit by move to Auto-Enrolment, reveals DWP report

An OECD study also reveals that the gap between pensions paid to public and private sector workers is now the largest in the world. 

Around 15% of UK employers plan to cut the costs of pensions for existing employees in a bid to counterbalance the financial impact of auto-enrolment, a new report has revealed.

The latest report on auto-enrolment produced by the Department for Work and Pensions also found that, even though the scheme had been successful overall, 4% of organisations likewise intended to reduce the amount that existing staff could contribute to their workplace pension plan.

Although the number of employees saving into pension schemes has increased in total, the amount they are contributing fell by about £3 billion between 2005 and 2015. Employers are also giving less, with contributions dropping by more than £4billion per annum, from £30.1 billion in 2005 to £25.9 billion in 2015.

This situation is likely to have come about due to the closure of many defined benefit pension schemes and the fact that many employers are also paying much less into defined contribution schemes.

But according to a second study undertaken by the Organisation for Economic Cooperation and Development, the gap between pensions paid to public and private sector workers is now the biggest in the world. An employee who joined the civil service in 2014 aged 20 and worked for an average salary throughout their career would receive a pension worth a huge 106% of their final salary, the report found.

But a private sector worker in a similar position could expect to be paid only a fifth of their final salary via the state pension, or 51.4 per cent if they made similar payments into a private scheme.

The UK is only one of 18 countries that pays civil servants more than their final salary in retirement and has the largest pensions gap at 84% compared with a 20% average and no gap at all in Finland, Sweden, Luxembourg and the Netherlands.

But the study recognised that the rest of the public sector had access to less generous pension schemes than the civil service did, and also noted that the civil service scheme has been altered more than that of any other country over the last two decades, which included increasing the pension age and almost doubling worker contributions.