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Survey reveals mass exit threat to public sector pensions

A new survey raises questions about the future viability of public sector pensions schemes as a result of people opting-out if the Government’s planned changes proceed. The opinion poll, conducted by Survation on behalf of Unite the Union, reveals that the biggest response to the government’s proposals may not be industrial action but the large-scale withdrawal from existing pensions schemes as a result of ministers’ plan to increase contributions.

Pensions survey results barchart 1

The survey showed that more than one-in-four (27%) members of the public would be likely to leave their pension scheme if contributions increased and the amount they received in retirement declined. This is not a surprise. Earlier this year the London Pensions Fund Authority warned: ‘The announced increase in local government pension scheme (LGPS) contributions of three per cent over three years could lead to a mass opt out of the scheme.’

However, the rising cost of living means that many public sector workers are already opting out of their pension schemes as a result of simply not being able to afford payments. This follows research from the Audit Commission (pdf) that shows opt-out rates among lower paid part-time workers can be three times as high as among full-time workers. This could have serious long-term implications for Government and the public sector employers who could be forced to sell off assets to meet existing obligations or provide additional support to pensioners in poverty.

The Survation study showed that 34% of those in work are not currently saving for their retirement. More than half (56%) of those who are not saving said they are not currently doing so because they ‘cannot afford to save for my pension at the moment’.

Pensions survey results barchart 2

Lord Hutton’s report (pdf) acknowledges that ‘any increase in contribution rates is likely to result in some increase in opt-out rates’. It adds: ‘Even if met by an increase in salary, the extra cash available from opting out may entice employees out of the scheme. Managing the risk of opt out would be key to transitioning to a more uniform approach.’ Given that a substantial number of public sector workers will experience a pay freeze until September 2013, add inflation running at 5% representing a real-terms pay cut, and new analysis suggesting 750,000 workers will be expected to pay more, if would be of little surprise if there was a large-scale opt-out as a consequence of the Government’s changes.

We know from the figures included in Lord Hutton’s own report that existing public sector pension schemes have already been reformed to the point that from 2012 they will actually cost less year-on-year as a proportion of GDP.

Putting those figures in the context of the Survation poll findings, it becomes clear that the main issue of ‘affordability’ within public sector pensions is that facing public sector workers themselves. The poll found that 74% of people felt that the proposed changes to public sector pensions ‘will make the current issue of pensioner poverty worse than it currently is’.  

The Government needs to urgently consider how to help increase the overall number of people in the public and private sector investing in their future retirement. Instead ministers’ current short-sighted proposals only stand to make things much worse.

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