Private sector staff receive equivalent of 2.5 per cent of salary; better balance of risk and reward required, says CIPD

Public sector employers are paying up to 10 times more into employee pension pots, as a proportion of base salary, than counterparts in the private sector, according to new figures.

Data published by the Office for National Statistics (ONS) showed that private sector workers in defined benefit pension (DB) schemes received an average contribution from their employers equivalent to just 2.5 per cent of their salaries last year.

The Civil Service paid a sum equal to between 20 and 28 per cent of salaries into pension schemes over the same period. Other state employers also offer rates far in excess of the private sector average. When averaged out across the Civil Service, NHS and teachers’ pensions schemes, this figure stands at around 17 per cent.

The data has raised protest among some. But CIPD performance and reward adviser Charles Cotton said it would be more constructive to focus on how to increase private sector provision.

“If you are a taxpayer and your employer puts ‘X’ amount into your pot, but you are paying ‘Y’ into teachers’ pensions, then you may feel aggrieved,” he said. “But we should look to increase employer contributions in the private sector.

“We need to look at what we can do around productivity – if you boost it then you can pay more into pensions. Also, we could be smarter and have just three or four big defined contribution (DC) schemes, so fees are lower and performance is better.”

The figures do not give a full picture, since twice as many active pensions in the private sector are operated on a DC basis. They also do not take account of the fact base salary in the public sector is lower on average.

The ONS figures showed that 33.5 million people in the UK were members of occupational pension schemes last year – up 10 per cent on the previous year, thanks largely to the increasing reach of auto-enrolment.

Public sector pension schemes contained 5.6 million active members – those for whom contributions were being made – last year, with private sector schemes closing the gap at 5.5 million.

Employees with private sector DB schemes were receiving an average of 16.2 per cent of their salary as an employer contribution last year. This is more in line with public sector contribution levels, but accounts for less than a third of active private sector scheme members.