Jeff Salway: Pensions gap set to widen as government reform appetite fades

WORKERS are being forced to increase their pension contributions, wait longer for their retirement and all in return for significantly reduced benefits. It’s the stuff of industrial action, yet a concerted backlash is unlikely.

Competition for the bleakest terms in which to depict the deterioration of private sector pensions continues to intensify. This week the Association of Consulting Actuaries (ACA) set out its stall for 2012 by describing it as a “seismic collapse”.

It warned that the gulf between pensions in the public and private sectors would continue to grow this year, with controversial government changes to the former unmatched by efforts to reinvigorate the latter.

The hope is that the decline is arrested or slowed by the start later this year of automatic enrolment into workplace pensions. This will certainly boost the number of people saving – a good start and very necessary. However, it may also prompt many employers to scale down their pension provision.

The government resisted the temptation to scrap auto-enrolment when it came into power, but it has lost some of its appetite for the challenge, judging by the delay in the starting date for smaller companies.

That’s not a good sign, because the challenge of workplace pensions really has to be grabbed by the scruff of the neck before it’s too late (if it isn’t already). The ACA acknowledged as much and the influential National Association of Pension Funds has on several occasional expressed its disappointment with the government’s efforts on occupational pensions.

Yet you wonder if the government really has the will to do this. Its pull back on automatic enrolment happened around the same time as the public sector pensions protests. A more level playing field is the last thing the government needs as it presses ahead with reforming public sector pensions. Would it be too cynical to suggest that the continued decline in private sector pensions is too politically useful?

Homelessness charity Shelter warns that around a million people have used payday loans to cover their mortgage or rent in the past year, with another six million resorting to other forms of credit and loans to pay for the roof over their heads.

It followed a similar report from Citizens Advice, which has seen a fourfold jump in the number of people with payday loans asking for debt help. There’s no need to emphasise here how worrying this pattern is, or the potentially disastrous implications of any interest rate hike.

However, the report was the cue for another backlash against payday loans, rather than a deeper look at why so many people are being forced to use them.

Using payday loans will only make matters worse for most people, yet banning them is not the answer. More helpful would be stricter rules around who can offer payday loans and the way in which they advertise.

One of several campaigns seeking a ban on payday loans is being led by a landlords organisation. Presumably it’s an attempt to deflect attention from the role played by private landlords, hiking rents at a time when their mortgage costs remain relatively low.

The government had its say too, courtesy of housing minister Grant Shapps. He made the very valid point that anyone with debt worries should seek advice from free agencies such as Citizens Advice. He is absolutely right but, sadly, his own government’s austerity measures mean Citizens Advice is having to make cuts, with some offices closing at a time of huge demand.

However, the number of people using payday loans will only continue to increase over the next year. Rising unemployment, low wage inflations and government spending cuts will see to that, with household incomes squeezed and personal debt mounting.

Those using loans to pay their mortgage are on the brink. Council of Mortgage Lender figures show that while repossession numbers have stabilised, the proportion of borrowers behind on their repayments by 2.5 per cent or more has risen, as has the proportion behind by more than 10 per cent.

That’s due largely to lender forbearance, with banks and building societies under pressure to consider repossession as the absolute last resort. That’s how it should be, of course but, hoping to defer losses until the market recovers, they have taken it further than usual. A change of approach is likely over the coming months, particularly if lenders showing the greatest forbearance come under further pressure amid a worsening of the economic crisis.

In turn, the prospect of lenders cracking down on arrears again will be good news for payday loan operators. But as the crisis continues to unfold, we need to go beyond lashing out at loan firms and do more to help and promote the debt advice services that so many households need.