Employer contributions to pensions and other financial workplace benefits
This research programme explored the opportunities for innovation and voluntary increases in employer contributions to pensions and other financial workplace benefits.
In the UK, pension regulations impose a minimum level of contributions to go into an individual’s pension via payroll if they are an eligible employee. For many people, these are set too low to ensure adequate incomes in retirement. To date, engagement techniques and educational interventions have, for the most part, had limited cut-through in encouraging individuals to contribute more. Policy debate is therefore becoming more focused on increases to statutory minimum contributions.
The role of voluntary additional contributions from the employer is less examined. These contributions can directly boost an individual’s savings, and depending on chosen structures, could incentivise the employee to make additional contributions and support broader financial wellbeing goals. Some employers already contribute more than the legal minimum for all employees, for example by matching contributions for those increasing their own contributions or for certain groups of employees. Encouraging take-up of matches, and supporting more employers to increase their contributions or to optimise their contributions structure in other ways, may both be paths to greater savings adequacy.
However, we also know that employers are facing significant barriers to considering changing their contributions structures. Clearly, the cost of contributions is a significant factor. Employers, as well as individuals, have been impacted by the pandemic and a fast-changing economic climate – for many this has financial implications, but also in terms of mental headspace and capacity for change. Administrative, resource and system constraints can also make change difficult to bring about.
Within this context, how much of a lever for improving retirement outcomes could a change in employer pension contributions structures be? And, is there an opportunity here, or are the contextual and structural barriers to change too great to make this potential a reality?
Our research programme
Prior to our research, available existing data didn’t give a very rounded or detailed view of the current employer contributions landscape. The scale of additional employer contributions on offer was unclear and there was also a lack of evidence and understanding about the attitudes of employers and the dynamics at play in their decision-making.
Our programme of work, supported by abrdn Financial Fairness Trust, explored opportunities for innovation and voluntary increases in employer contributions to pensions and other financial workplace benefits. It addressed the current gaps in understanding, looking across a broad range of employer types to answer the following kinds of questions:
- How many of the 10 million workers brought into retirement saving though auto enrolment are offered additional employer contributions in some form; what are the levels of additional contributions; how many workers have taken them up and how many are ‘leaving money on the table’ through matches they are not accessing?
- How are pension contribution levels decided? What are employers’ motivations for going beyond the minimum? Under what conditions would employers consider increasing contributions?
- What alternative design options might make more effective use of limited employer budgets, in terms of potential end benefits to employees? What appetite is there to adopt these design options? How feasible would change be?
Read a summary of our findings: Executive summary (PDF)
Read the full report: Employer pension contributions in the UK: the current landscape and potential for innovation (PDF)