Employers are concerned that ongoing financial pressure is prompting employees to make short-term trade-offs that could affect long-term retirement saving, according to new research¹ from People’s Pension².
More than six in ten employers (62%) say they are worried that financial pressure will lead to more employees opting out of workplace pensions. Almost two thirds (61%) expect staff to reduce contributions as they prioritise day-to-day living costs, at a time when inflation remains above 3% and many households continue to feel the cumulative impact of higher food, energy and mortgage costs compared with pre-2022 levels.
Concern is more pronounced among certain groups. Employers at medium-sized businesses are more likely to expect reduced contributions (72%), as are employers in London (72%) and Yorkshire and Humberside (80%).
Affordability is only part of the picture. Nearly six in ten employers (59%) say employees do not fully understand the value of pensions as part of their total reward package, while more than half (52%) are concerned employees are not engaged or getting the most out of the pension available to them. Almost half (49%) acknowledge that they do not communicate or promote their workplace pension effectively within their organisation.
Pressure is also evident in particular sectors. Employers in wholesale, retail and franchising (68%) and construction (64%) are more likely to say employees are struggling to maintain pension contributions, increasing the likelihood of reduced saving or opt-outs.
The concerns come amid ongoing industry discussion about contribution adequacy. With the 8% auto-enrolment minimum widely considered unlikely on its own to deliver the level of retirement income many savers expect. Maintaining consistent contributions is increasingly important to achieving better long-term outcomes.
Despite these challenges, employers continue to recognise a broader responsibility. More than four in five SME decision-makers (82%) say they feel responsible for their employees’ overall financial wellbeing, even as three quarters (75%) acknowledge that rising business costs limit how much they can increase pay.
When asked what would most improve pension engagement, employers most commonly point to clearer communication and education about pensions (45%), alongside additional support for financial wellbeing and retirement planning (40%).
Stuart Reid, Distribution Director at People’s Pension, said: “Employers are navigating a period where both businesses and households are under sustained financial pressure, and there is understandable concern about the impact this may have on long-term saving behaviour. What this research highlights is that affordability and understanding are closely linked.
“Even short breaks or reductions in pension contributions can have a disproportionate effect over time. When saving stops, people miss out not only on their own contributions but on employer payments and years of compounded growth - losses that are hard to rebuild. We see the long-term consequences of interrupted saving in the gender pension gap, where missing years due to childbirth and caring responsibilities have resulted in significantly lower retirement outcomes.
“Workplace pensions remain one of the most effective ways to support long-term financial security, but engagement cannot be taken for granted. Employers can make a real difference by clearly explaining the value of employer contributions, highlighting the long-term impact of even small increases in saving, and offering simple guidance that helps employees balance short-term financial pressures with future retirement needs. Clear, consistent communication, particularly at key moments such as pay reviews or major life events, is crucial to keeping retirement saving on track.”
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