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Public-private pension split

At least 9m people in the UK are ‘under-saving’ for their pensions and the number is likely to grow with the shift from defined benefit (DB) to defined contribution (DC), said Adair Turner, chairman of the Pensions Commission, presenting its first report.
But the “significant minority” still in DB schemes, such as public employees and senior executives, will enjoy “more than adequate pensions” said Turner, who is also chairman of the Low Pay Commission.
The implications of inadequate saving, however, will be more perceptible in the next 15 to 25 years, as Turner stressed average pension income is higher now than 20 years ago and likely to remain so in the next decade.
Turner was presenting the government-backed Pensions Commission’s report ‘Pensions: challenges and choices’. Flanked by fellow commissioners John Hills of the London School of Economics and Jeannie Drake, general secretary of the Communication Workers Union, he said
the report was “dispassionate and fact-based”.
The commission was not making policy recommendations, but aimed at stimulating a “well–structured and well-informed debate” he said.
The UK pension system is one of the “least generous state pension systems in the developed world” but as the state moves to decrease support the private pension system “is not developing to offset the state’s retreating role,” Turner said.
“The total level of funded pension saving is significantly less than official estimates suggest” and is “at best flat” the 316-page report also argues.
“We estimate that at least 75% of all DC-extreme members have contribution rates below the level likely to be required to provide adequate pensions.”
As a “shift of risk” occurs from state employers and the financial services industry, individuals are left to make important decisions, for which they are often ill equipped. They simply “do not make rational long term financial decisions,” Turner said.
He also said a “bewildering complexity” had grown over many years in the state and private systems as well as “the interface between them”.
To revitalise the voluntary system, the report suggests employers consider making occupational scheme membership a condition of employment. But such a measure would be unlikely to reverse saving behaviour in small firms, the report asserts.
The commission has also put forward the option of compulsion – on which further work will be done in the next few months.

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