New research* indicates that most employers believe current pension contributions will not achieve good outcomes for their employees. Almost half (47%) view it as a challenge to face now and a further quarter (28%) see it as one they will need to address in the near future.
These findings demonstrate that significant changes need to occur in workplace pensions over the next few years. The recent announcement by Chancellor, Rachel Reeves, of a review into DC workplace pensions could accelerate changes to contribution rates and pensions strategy that many employers already know they need to make. In the survey, 89% of respondents said they are likely to adopt new HR strategies to achieve retirement adequacy in the next two years.
The survey found many employers already believe they will need to increase their contributions, potentially anticipating legislation changes to auto-enrolment minimums. At present, just over a third (37%) of respondents offer between the statutory minimum required by auto-enrolment of 3%, and 4.99%. However, only 17% of respondents believe they will be offering this in two years’ time. By 2026, nearly one in five (19%) think they will be contributing 10% or more to employees’ pensions. This represents a significant increase as currently, only 1 in 10 provide this level of support.
Employers want help from providers and consultants
While increasing employer contributions will boost pension pots, it is not the only way to improve outcomes. Providing employees with more education around their pensions, engaging them earlier with pensions and encouraging them to consider increasing their own contributions are all important measures that can improve the situation.
Almost all employers (98%) want to maximise the support available from pension providers. This could involve working in tandem with them on pensions education and engagement, for example. Over three-quarters (78%) want to maximise the support from their consultant, looking to them to suggest effective strategies.
The findings of our survey indicate that pensions are very much at the top of the agenda for reward, compensation and benefits professionals, but HR strategies will need to change to improve outcomes for employees. HR already understands how important financial wellbeing is to the overall success of an organisation, but retirement adequacy threatens to undermine the work being put in by HR professionals to create a happier and healthier workforce.
As well as improved guidance and education to address the issue, many accept that increased contributions will be required to make a real difference. To maximise their investment, employers will want to work more closely with providers and consultants, placing a greater emphasis on achieving value for money as well as retirement adequacy.
Ant Donaldson, Reward Manager – Benefits, Wolseley said, “We’re very much aware that the ongoing impacts of the cost-of-living crisis can make it hard for colleagues to keep focused on saving for their retirement, finding effective ways to balance their day-to-day priorities with their long-term objectives. To help support their journey into retirement, we are focused on providing wide-ranging financial wellbeing resources, encouraging them to think earlier about their pensions and what outcomes they hope for once their working lives come to an end, whilst supporting their shorter-term financial needs. Ensuring our pensions strategy remains robust and fit for purpose is very much a priority for us and recently led us to completely re-vamp our offering by moving to one of the leading master trusts.”
*Conducted by the Reward and Employee Benefit Association (REBA)
