The shift from defined benefit (DB) to defined contribution (DC) pensions has exposed a widening retirement savings gap between public and private sector workers, Hargreaves Lansdown has suggested, raising concerns ahead of upcoming state pension changes.

The firm’s Savings and Resilience Barometer revealed that public sector households (58 per cent) are more likely to be on track for retirement adequacy than private sector (42 per cent) and households overall (53 per cent).

Hargreaves Lansdown head of workplace saving analysis, Clare Stinton, explained that this difference stems largely from the prevalence of final salary pension schemes in the public sector, which she said can “play an enormous role” in helping people to build a resilient retirement income.

Stinton said that while such schemes still exist in parts of the private sector, they have become “vanishingly rare” in recent years.

And although auto-enrolment has brought more people into pensions, Stinton argued that it is clear “more needs to be done to boost contribution rates”.

She also emphasised the importance of looking beyond pensions when assessing retirement resilience and instead considering people’s wealth in its entirety, as when wider assets such as savings and investments are considered, people’s resilience “rockets”.

Public sector workers still “lead the pack”, with nearly two-thirds (65 per cent) on track for an adequate retirement once non-pension wealth is considered, up from 58 per cent when looking at pensions alone.

The resilience also improves among private sector workers when broader savings are considered: with employees in large companies seeing a rise from 41 per cent to 51 per cent, while those in small and medium enterprises (SMEs) see an increase from 42 per cent to 51 per cent (excluding emergency cash).

The self-employed, meanwhile, “continue to struggle”, with 36 per cent on track with their retirement saving, which Stinton suggested can be due to this group being “locked out” of auto-enrolment as well as favouring more flexible ways of saving beyond pensions.

“Irregular income can drive this group to prioritise flexibility over traditional pension contributions, leading many to invest outside of pensions altogether,” she said.

However, when wider assets are considered for this group, the number of households on track for an adequate retirement income rises to 47 per cent.

For this group, Stinton argued, the lifetime individual savings account (LISA) could be of “huge benefit”, particularly for basic rate taxpayers.

She explained this was because the 25 per cent government bonus mirrors basic rate pension tax relief, but with the added benefit of tax-free withdrawals from age 60, and funds can still be accessed earlier in an emergency, subject to a 25 per cent exit penalty.

Hargreaves Lansdown has also called for reforms to make LISAs “even more effective” by expanding the age eligibility beyond 40 and reducing the exit penalty to 20 per cent, as it said these changes would “better reflect the realities of self-employed work patterns and support greater long-term financial security”.

Overall, Stinton argued that there is “still a long way to go” in closing the gap between public sector households and private sector and the self-employed, but argued that there is much that can be done to close the gap.

“We may well see the government revisit auto-enrolment contribution rates as part of its wider adequacy work,” she said.

“Rather than a rise in minimum contribution rates across the board, we could, for instance, see more targeted measures – for instance, encouraging employers to increase their own contributions for those employees able to boost theirs.

“We may also see more employers look to boost their employee benefits packages with wider savings products.”

In addition to this, she said that small steps, such as nudging up pension contributions, maximising what’s on offer from an employer, or delaying retirement, can also “shift the dial significantly”.

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