Gold-plated pensions for 93% of public workers... but just 13% of private staff

ALMOST all public sector workers still pay into ultra-secure company pension schemes which have nearly vanished in the private world, new figures show.

Around 93 per cent of workers employed by the state enjoy a lucrative defined benefit scheme which will pay them a set proportion of their salary when they retire – typically rising in line with inflation for the rest of their life.

By contrast, just 13 per cent of private sector employees get this benefit according to a report by the Office for National Statistics. Most instead rely on a much riskier defined contribution scheme, where their future income is linked to the stock market and their employer is likely to contribute far less.

Sir Steve Webb, a former pensions minister who now works at savings business Royal London, said: ‘These figures show we have two very different nations when it comes to workplace pensions.’

Defined benefit schemes used to be common at private sector firms, but the vast majority have been closed to new savers after being hit by rocky markets and increasing life expectancy. By contrast, in the public sector the pension schemes are backed by the taxpayer.

And unlike firms, the state does not have to plug gaps with profits which could otherwise be used to invest in growth or given to shareholders. Private sector firms have turned to defined contribution schemes instead which impose less of a burden on them but are riskier for staff. Auto-enrolment rules mean all private sector employees are signed up to their firm’s scheme unless they opt out.

But even so, public sector workers typically save far more each year, with nearly half of them putting away at least 7 per cent of their annual salary. In the private world, only per cent of staff make contributions hit this level.

Instead, close to half of private sector pension savers pay in less than 2 per cent every year. Research by Aviva suggests this would mean they retire with a pot of just £143,000 – not enough to provide for old age. Only 1 per cent of public workers contribute less than 2 per cent.