UK Markets closed
  • FTSE 100

    7,017.47
    -135.96 (-1.90%)
     
  • FTSE 250

    22,324.19
    -210.95 (-0.94%)
     
  • AIM

    1,229.80
    -11.57 (-0.93%)
     
  • GBP/EUR

    1.1636
    -0.0053 (-0.46%)
     
  • GBP/USD

    1.3809
    -0.0115 (-0.8272%)
     
  • BTC-GBP

    25,992.32
    +223.25 (+0.87%)
     
  • CMC Crypto 200

    888.52
    -51.42 (-5.47%)
     
  • S&P 500

    4,166.45
    -55.41 (-1.31%)
     
  • DOW

    33,290.08
    -533.37 (-1.58%)
     
  • CRUDE OIL

    71.50
    +0.46 (+0.65%)
     
  • GOLD FUTURES

    1,763.90
    -10.90 (-0.61%)
     
  • NIKKEI 225

    28,964.08
    -54.25 (-0.19%)
     
  • HANG SENG

    28,801.27
    +242.68 (+0.85%)
     
  • DAX

    15,448.04
    -279.63 (-1.78%)
     
  • CAC 40

    6,569.16
    -97.10 (-1.46%)
     

Pensions perfect storm could prompt dropouts, spending watchdog warns

·3-min read

A pensions perfect storm could lead to younger generations dropping out and having inadequate incomes in later life, a spending watchdog has warned.

The Treasury has also done little to identify and manage the stark differences in average pensions between genders and other groups, the House of Commons Public Accounts Committee (PAC) said in its public sector pensions report.

The committee warned of “a danger of a perfect storm where some young people believe they cannot afford pension contributions because of high costs of living and retire with a reduced public sector pension as a result”.

It added: “Many younger workers will continue to pay rent in retirement because they cannot afford to buy a home, and the cost of supporting this generation will fall on future taxpayers.”

The Treasury has not done enough to ensure people understand the value of their pensions, the committee said.

It said the department had provided data implying that more than 238,000 employees have opted out of their pensions.

Inadequate pensions are likely to push costs into other policy areas, such as if people are more likely to rely on the benefits system, the committee added.

Around 25% of pensioners and 16% of the working-age population are members of one of the four largest public service pension schemes covering the armed forces, Civil Service, NHS and teachers, the committee said.

But public service pension policy is affecting the delivery of frontline services in some areas, such as education and health, it warned.

Retirees’ pension benefits are paid out of current workforce contributions – and the committee has seen evidence of independent schools opting out of pension schemes because of increasing costs.

In 2019-20, a substantial increase in employers’ pension contributions directly affected employer budgets. As a result of concerns about increasing contributions, around 200 independent schools are set to withdraw from the Teachers’ Pension Scheme, the committee added.

The interaction between the NHS Pension Scheme rules and the tax system also means many doctors have reduced their working hours, opted out of the scheme, or retired early.

The committee also raised concerns over a lack of consideration about whether armed forces pension scheme arrangements are sufficient to support personnel as they move into civilian life.

A focus on affordability means the Treasury has lost sight of the potential for public service pensions to support employers in recruiting and retaining the staff they need to deliver public services, the committee said.

The department should also be proactive in collecting data to identify where significant pension gaps exist between different groups of people, the committee said.

It highlighted a 45% gap in the average pension being paid to male and female pensioners.

The committee said similar gaps most likely exist in other groups, such as among black and minority ethnic scheme members – but the Government Actuary’s Department has said there is insufficient data.

The report said different pensions outcomes between male and female pensioners exist because of past differences in pay, and the Treasury seemed resigned to the pension gap enduring for many decades after the pay gap is closed.

But the committee said it is concerned that this will lead to inequalities persisting and could prompt legal challenges in the future.

PAC chairwoman Meg Hillier said: “Pension planning must be long term; mistakes and poor planning have an impact for decades.

“Short-term cost savings can become long-term costs to individuals with lower retirement incomes and the taxpayer who may end up supporting them.”

A Treasury spokesperson said: “Public sector pensions are among some of the very best on offer and the vast majority of public sector workers elect to enrol in these schemes.

“We welcome the report by the committee and will respond in due course.”

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting