UK roundup: Hewitt Associates, DWP statistics, CIPFA
UK - Hewitt Associates has estimated a £1.2trn personal pension shortfall in individual retirement income, while the Department of Work and Pensions (DWP) has revealed occupational pension benefits made up a quarter of UK pensioners' income in 2008-09, and the Chartered Institute of Public Finance and Accountancy (CIPFA) has warned that plans to cut public sector pensions could cost British taxpayers £8bn.
A survey of 2,000 UK citizens conducted by YouGov suggests there is a large gap between the income workers expect to receive in retirement and how much money they are currently paying into a non-state pension.
Hewitt Associates claim people are expecting to retire with £50,000 more than they will receive, amounting to the £1.2trn shortfall, up drastically from the £800bn it calculated when the survey was last conducted six years ago.
"This saving gap cannot be met through higher state benefits funded by taxing future generations as the proportion of pensioners is increasing relative to the working population," said Lynda Whitney of Hewitt.
The survey estimated that only 27% of people are members of a private sector pension scheme and barely 30% are members of public sector schemes.The latest update in the government's Pensioners' Income Series for 2008-09 showed that the pensioners' average income over the last decade has grown faster than earnings. Net income after housing costs for pensions rose by 38% between 1998-99 and 2008-09, while average earnings increased by 12% in real terms over the same period.
The report also highlighted variations in income within groups of pensioners, with couples having on average two-and-a-half times more occupational pensions and investments income as single pensioners, and over six times the average level of earnings.
However, older pensioners tended to have lower incomes: in 2008-09 couples where the head of the household was aged 75 or over had an average net income of £377 a week, compared to £454 for those aged below 75.
Meanwhile, the main source of pensioner income in 2008-09 remains state benefits, which account for 43% of the total income. Occupational pension scheme benefits account for 25%, while earnings make up 19%. Additional boosts to income come from investments, which accounts for 9%, and approximately 4% from personal pension schemes.
The statistics, based on the Family Resources Survey (FSR), which showed there were 8.6 million pensioners in the UK in 2008-09 excluding those in care homes, revealed that 95% of all pensioners reported income from the state pension in 2008-09. Meanwhile 71% received some income from investments, although half of these received the equivalent of £7 a week or less, while 59% of pensioners received some form of occupational pension income, with an average of £168 a week.Elsewhere CIPFA has warned that cutting back public sector pensions "would lead to an almost immediate £8bn cost to the taxpayer".
Speaking at the National Association of Pension Funds (NAPF) local authority conference this week, Bob Summers, chair of the CIPFA pensions panel, welcomed the new government's commitment to review the sustainability of public sector pensions, but highlighted the "potential hidden costs of radical reforms being proposed in some quarters".
Summers told delegates that in 2008-09 public sector workers contributed more than £8bn to pension schemes, which was effectively used to pay current pensioners, so if these pension funds were to be closed then taxpayer money would be needed to fund the £8bn gap.
He acknowledged that there are ways to reform public pension schemes to ensure the cost is contained at a level the public finances can afford, such as increasing retirement age and/or employee contributions.
But he warned against suggestions to use the forthcoming public sector pensions commission to address the perceived inequality between public and private sector pensions, as he argued the "only positive and constructive way" to solve this would be to increase the provision of affordable and sustainable private sector pension schemes.
Summers added: "If provision for an adequate retirement income isn't made while working, the burden will fall on the taxpayer. We need to secure the contributions made by public sector workers and encourage private sector workers to make a similar provision."