The shortfalls of defined contribution (DC) schemes will force employers to deal with an ageing workforce or provide a pensions incentive to retire, a consultant has warned.

Buck Consultants said that some people are working longer because they cannot afford to retire, however employers are only paying minimum amounts into auto-enrolment schemes.

Unless employers need their workers when they are 74, they need to ensure their workers' pension arrangements provide sufficiently for a retirement earlier that that, the consultant said.

Fraser Smart, Buck Consultants managing director, said: "As the reality dawns on more and more generations that DC pension schemes do not deliver the sort of outcomes they were expecting and that they are going to have to work longer and save more, this will have knock on effects for employers, who are going to have to deal with an ageing workforce, or provide a pensions incentive to retire."

He added: "Employers paying minimum amounts in automatic enrolment schemes today may take the attitude that it's not their problem. But even in 10 years' time, if the number of over 65s in work continues to rise at the rate it has in the last 10 years, we could easily see about a third of the 65-74s still in work."

According to figures from the Office of National Statistics (ONS) based on 2011 statistics, 10% of the over 65s are still economically active.

Around 16% of those aged 65-75 were still working in comparison to 8.7% of the same age group in 2001. Of those aged 75 plus, around 3.6% were still working.

A recent ONS report said that only half of the over 65-year-olds in 2011 said they were in good health.

Smart said: "Whilst I am fully supportive of anyone who wants to work on into their later years, my concern is for those who are forced to work on, especially where they have been making substantial contributions to pension arrangements, only to find they do not deliver the sort of income that allows an adequate retirement.

"And I don't just mean not enough money for holidays and new cars, I mean not enough to live on."

Smart said that an ageing workforce will stop employers hiring younger (and possible cheaper) workers.

Additionally, a report by NOW: Pensions suggested that a third of respondents believe that those aged 18-31 will struggle to save enough to retire.

First published 11.09.2013

monique_simpson@wilmington.co.uk