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Government reform could hit five million pensions

LONDON - Government pension reforms could spell a lower retirement income for some five million private sector workers, a major study showed on Thursday.

Research conducted among 750 companies revealed that sweeping changes to the UK’s pension system would lead to a drop in employer pension contributions for the average worker.

Many of the five million people in the private sector whose employers currently contribute to their pension would be unaware of the resultant drop in their retirement income, it said.

Steve Folkard, head of pensions and savings policy at AXA, one of the four study sponsors, called for the government to act.

“We support reform, but this work shows that avoiding damage to the prospects for today’s savers has to be treated as seriously as the goal of helping the under-pensioned,” he said.

“The government can’t ignore this. There are five million people who could be affected in a variety of ways.”

The report, Pensions Reform in the Workplace, claimed that many pension schemes would maintain current employer contribution levels only for existing members.

Eight out of 10 schemes were expected to cut contributions for future employees or those who had not yet joined their scheme.

That could see total employer contributions tumble by more than 10 percent in the first decade of the government’s proposed National Pension Saving Scheme (NPSS), as workers were hit by lower levels of contribution upon changing jobs.

John Lawson, head of pensions policy at Standard Life -- another of the study sponsors alongside Aegon and Scottish Widows -- said: “Levelling down is a process not an event.

“As people move jobs they move from being members of a good scheme to new starters who can’t join, and who get a lower contribution from their employer.”

The research, undertaken by Deloitte, claimed to be the most comprehensive research of employers’ opinions since the publication of the government’s plans for pension reform on May 25 this year.

It proposed that from 2012 people will automatically be enrolled in the NPSS, also known as “personal accounts”, unless they opt out.

Other key aspects of the biggest shake-up to pensions for years include a rise in the state pension age to 68 by 2044 in return for a more generous entitlement, and a restoration of the link between the state pension and earnings.