Employer pension contributions in the UK
Supporting employee financial security in retirement
Research by Nest Insight explored the current employer pension contribution landscape in the UK.
It found that many employers offer above-minimum employer contributions, but these are often not directed to those who may be most in need:
- Around half of large employers offer more than the minimum, compared to a quarter of small organisations.
- Employers are more likely to offer above-minimum contributions if they predominantly have employees that are higher earners or higher skilled.
- Nearly 2 in 3 employers say that their organisation is unlikely to voluntarily implement a different approach to pensions contributions in the next two to five years. This rises to 3 in 4 among smaller employers. The current challenging economic context, the inflexibility of legacy systems and the complexity of some employers' pension provision all act as strong barriers.
- Employers are most interested in innovations that help employees to contribute more without necessarily requiring higher contributions from themselves, such as:
-Salary sacrifice: 2 in 3 employers thought a salary sacrifice approach was appealing in which tax savings could potentially be added to pension contributions to boost the employee's retirement saving.
-Auto escalation: 5 in 10 employers liked the idea of an auto escalation approach in which an employee can commit now to automatically increasing their pension contribution in future, for example when they get a pay rise or after a year.
-Hybrid approaches: Around 4 in 10 employers thought combining pension saving and other forms of saving was appealing, for example a hybrid 'sidecar saving' model where employees build up a pot of liquid emergency savings alongside their retirement savings.
-Higher default with the option to opt-down: Around 1 in 3 employers found this approach attractive. In this model, employees could choose to opt down to minimum contributions from a higher default, rather than them having to opt in to making higher contributions.