800,000 Londoners caught out by pensions 'apartheid'

THE full scale of London's "pensions apartheid" is revealed by the Evening Standard today.

Experts warn that more than 800,000 Londoners under 35 face an impoverished retirement because they have failed to start a pension. All of them work in the private sector.

But each is paying hundreds of pounds a year, through taxes, to fund the copper-bottomed final salary pensions of the capital's 760,000 public sector workers.

As the Standard revealed yesterday, London's public sector pension funds have been ravaged by the stock market collapse, with local authorities alone facing a £10 billion deficit that will put extra pressure on taxpayers' pockets.

Dr Ros Altmann, a former government pensions adviser, warned: "We already have a pensions aristocracy and the pensions paupers who are paying for them."

A Standard investigation has found:

Around two-thirds of young Londoners in the private sector have not signed up to company or private pension schemes.

Only 12 per cent of private sector workers are now lucky enough to be guaranteed a final salary pension - and the vast majority of those are over 35 years old.

Experts warn that all London firms will ditch their expensive final salary schemes for new employees within the next five years as longer-living pensioners put pressure on them for longer and the recession forces cost-cutting.

The London local authority pension black hole already equates to more than £3,000 per taxpayer in the capital. If the parlous state of other London public sector pension funds is also considered that burden rises to £6,000 each.

Malcolm Small, director at retirement planning at the Tax Incentivised Savings Association, said: "It's terrifying how ill-prepared a whole generation is for old age, when it's what they do in their twenties that matters most."

He said up to 60 per cent of young Londoners offered company pension schemes where the firm matches contributions failed to sign up. And just a tiny proportion of people started a pension if their company did not pay into the corporate scheme or if they were on temporary contracts and could only access a private scheme. Mr Small added: "The young are saddled with a raft of financial pressures that weren't as extreme for previous generations. Student debt and the cost of living mean many are simply not in a position to save in their first few years of working. Then the first thing they want to do with any spare money is to save for a house deposit."

At the same time these workers must help plug the £10billion black hole which has opened up in the capital's public sector pension pots as a result of the stock market's value falling by more than a third over the past year. Government bodies typically invest 70 to 80 per cent of their pension pot in the stock market.

While guaranteed final-salary pensions continue to be offered to almost all public sector workers, private companies are replacing hefty retirement packages with less generous schemes.

Since 2000 the number of private sector workers in final salary schemes has plummeted by 40 per cent, the Institute of Directors said. They could disappear altogether in five years.

From 2012, young people will be automatically enrolled in a company pension scheme and will contribute four per cent of salary. The company will add three per cent and a further one per cent will come from tax relief. But the eight per cent total contribution will still fall far short of public sector schemes.

WHAT YOU SAID

CASS HELSTRIP, 29
Job: PR director
Salary: £37,000+

Home: Rents a flat in Earlsfield with two other people for £550 per month including utility bills.

Why no pension?

"I'm not bad at saving at all — I'm saving £1,000 a month, but for a house deposit. I'm aiming for about £70,000 or £80,000. I've always been sensible with my money but I just don't see a pension as a priority. My company doesn't have a scheme where they match contributions. Markets are so volatile that pensions seem very risky. My dad had a pension with Equitable Life and lost so much money — that really put me off. I'd rather buy property to give me security in retirement. I've worked since I was 16, doing Saturday jobs at Homebase and Laura Ashley to save money for university and then as a fundraiser three nights a week to support myself while studying. So I'm not your typical young person living on credit. I gave up having a gap year because if I had taken one I would have been in the intake that first had to pay student fees. Some of my generation have a completely laissez-faire attitude to saving and could find it very difficult later. It's clear that public sector employees have a much better pensions deal but I don't begrudge them, I just think the Government should be doing more to help young people understand pensions."

JULES COOPER
Journalist
Age: 25
Salary: £16,000

Home: Rents a flat with three others in Deptford for £466 per month.

Why no pension?

"A pension is not on my agenda. I'm struggling to live on my salary in London, let alone save. Once I've paid rent, £72 per week council tax, bills, food and travel, I have about £50 left a week. It's ridiculously hard. I'm not thinking about how I'm going to cope in retirement. I try to block it out because it feels too overwhelming. I've got student loans to pay, about £3,000, but if my salary goes up nine per cent of it goes into paying it off. My firm has a pension scheme but I don't know if it matches your contributions or not. I haven't looked because I can't spare one per cent. If I do have any spare money I want to buy a house first, and that is harder in London than anywhere. It is unfair that local government workers have a different experience."

JESSICA DURANT, 24
Teaches English to foreign pupils
Salary: £13 per hour in term (£14,000pa)

Home: Shares a room in a rented two-bedroom house in Wandsworth with her boyfriend, for which they each pay £500 per month

Why no pension?

"After I've paid my rent, bills and travel I only have about £70 a week. Luckily I have no student loans but I've got a £2,000 overdraft to pay off gradually over the next couple of years. There's no way I can start saving. I'm effectively employed by the school on a freelance basis so I don't have any rights to a pension. I probably need to retrain and do a PGCE to get a decent job where I can start saving, but I don't think I can afford another year of being a student. I know I need to save but to be honest if I had any spare money I'd put it towards a house. I'm aiming to start a pension by the time I'm 35. I want a home, family and job security before I decide to lock my money away for such a long time."