MPs have warned that there is a “perfect storm” looming, as almost 250,000 civil servants and emergency workers have opted out of their pension schemes. This could create generations of cost issues for the public sector.
As more workers stop saving for their futures, it potentially creates more pensioners without the means to support themselves. If pensioner poverty is to be avoided, the shortfall will have to be made up through the provision of more generous state pensions.
What is causing the drop in pension scheme enrolment?
There are a variety of reasons, with some owing to short-term spending priorities, however there have been suggestions that there is a direct correlation with the increased cost of living having an effect on younger worker pension enrolment figures dropping. In particular, the pension scheme enrolment drop has been identified from young people working as teachers, nurses and civil servants.
The Public Accounts Committee has warned of: “[the] 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. 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 effect of decreased pension enrolment
Following the published report, MPs have warned that the Treasury’s mishandling of public sector pension reforms will take generations to resolve and is already affecting frontline services. Especially the education sector according to MP’s, as pension benefits are paid out of current workforce contributions.
It has been observed that some independent schools are choosing to opt out of pension schemes because of increasing costs. In fact, at least one institution had to make redundancies in response to the increase in costs.
Meg Hillier MP and Chairwoman of the Public Accounts Committee even made reference to the devastating effects of the McCloud Judgement, as we previously reported, and described how “the Treasury’s £17billion mistake on pensions reform is a ripple compared to the tsunami of costs to the public purse if Government fails to address the growing number of young people unable to afford to plan for a proper pension.”
A great concern is that the cost of supporting this generation will fall on future taxpayers.
Long term impacts of decreased pension enrolment
The calls for action highlight the impact that can follow a decrease in pension scheme enrolment. Some may leave a long-term stain on taxpayers and the government, and unless there is action, the potential in having to raise taxes significantly in order to maintain public sectors pension schemes; implies the beginning of a perfect storm. Hillier demands that “Pension planning must be long term; mistakes and poor planning have an impact for decades.”