New report from Standard Life Centre for the Future of Retirement finds employers want to boost employee pension saving, but struggle to prioritise it and are concerned about timing, pace and budgeting for any changes. Standard Life Centre for the Future of Retirement urges the Pensions Commission to build consensus amongst employers, workers and industry to shape the future of pension saving.
New research from the Standard Life Centre for the Future of Retirement has found that over two in five (43%) business leaders think auto-enrolment (AE) contributions should be raised. This compares to a third (36%) who believe it should remain at current levels, just 6% who believe the rate should be lowered, and 8% who believe it should be removed and set by individual employers. Larger employers (with 250+ employees) are more in favour of rises to AE contributions with the majority (54%) supporting a rise, while half (50%) of medium employers (50-249 employees) are in favour of a rise too.
This new polling, of 500 business leaders, alongside a new report, explored employer attitudes to raising contributions and their awareness of options for enhancing provision, against the backdrop of both a brewing retirement income crisis and near-term pressures on hiring costs and weak economic growth.
The survey identified a clear theme, that employers would like to be able to do more for their employees, and among those considering raising pension contribution levels in the next five years, 37% say their motivation is to support employee wellbeing and long-term financial security, 37% also say they believe it is their responsibility to help their employees save more for retirement, and 34% see it as a way to help retain and hire staff.
If pension contributions were to be increased, 73% would support a phased timetable for gradually raising contribution levels, while a similar proportion (72%) would support the flexibility to pause, slow or ‘opt-down’ increases to contribution levels during economic downturns. These options have more support than a shorter 6–12-month implementation timetable, which 57% would support. Standard Life previously identified that contribution increases should be phased in gradually, with built-in pause mechanisms to halt or slow rises during periods of economic strain.
New report assesses employers’ appetite for change
The introduction of AE is rightly viewed as a huge success for pension savings, with more than 22 million employees now saving into a workplace pension, but gaps in coverage exist and, by the government’s own estimates, more than 15 million working-age people are heading for an inadequate retirement income3. A Pensions Commission has been established to address this challenge, but the government has stated no changes to AE pension contributions will be made in this Parliament.
Against this backdrop, the Standard Life Centre for the Future of Retirement’s new report, Defying Inertia4, produced by the Institute for Employment Studies, explores in-depth interviews with employers and experts to understand appetite for change and to also identify any near-term changes employers could use to support lower-to-middle earners.
The report, based on qualitative interviews with employers, finds:
Employers want to support greater pension saving, with little opposition to higher contributions, and recognise the need for policy changes to boost pensions adequacy
They emphasise the importance of flexibility and introducing any changes at the right time and pace, with a clear timetable to allow employers to plan and budget with confidence so costs can be managed during periods of economic uncertainty
Employers highlighted that part-time workers, those with multiple jobs, younger employees, and people with fluctuating hours continue to fall outside the AE system
Most employers agreed that current minimum contribution levels are insufficient for a financially secure retirement, with inertia boosting participation but keeping savings levels low
The Pensions Commission has an opportunity to build consensus – to bring together employers, workers and the industry to shape the next phase of AE.
Both polling and employer interviews assessed whether there was scope for changes within the current savings framework. In the survey of business leaders, three fifths (61%) say they are likely to consider auto-escalation, 59% ISAs linked to their payroll and 49% sidecar savings to increase employee pension saving, as an alternative to salary sacrifice. The polling shows that business leaders are open to alternatives, while the qualitative interviews found that despite being positive about options like auto-escalation and sidecar savings, adoption rates and awareness remain low due to a combination of complexity, cost and a belief that more fundamental reform to pension contributions is needed to deliver meaningful change.
Employers were also asked about other ways they could boost pension provision and engagement. A clear majority of business leaders would consider lowering the age threshold for default AE contributions in their organisation from 22 to 18 (75%), while seven in 10 (70%) would consider lowering the income threshold (with lower earners and part-time workers currently earning below £10,000 a year not eligible for AE). This indicates strong employer support for the recommendations of the 2017 Auto-Enrolment Review. The previous government had agreed to implement these recommendations during the mid-2020s, but this has not yet happened.
Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, comments: “The success of auto-enrolment is to be celebrated, but it’s clear more needs to be done to support low-to-middle earners, in particular, with minimum contribution levels giving people a false sense of security that they are saving enough for the retirement income they need. Employers recognise the important role they must play with many doing more than the minimum, alongside supporting further change. Ultimately, ongoing inaction will mean costs will be borne by government and society further down the line. If changes are to be introduced, we need to ensure broad support. It’s also crucial that employers have time to prepare with a clear roadmap for change – this is about evolution not revolution to improve pensions adequacy.
“As the Pensions Commission considers the future of the system, we have a crucial opportunity to ensure it remains fit for future generations while giving employers certainty. There are important times ahead as employers, government and the industry restore the promise of a decent retirement for future generations.”
Gail Izat, Managing Director for Workplace and Retail Intermediary at Standard Life, comments: “Employers care deeply about supporting their people’s financial security, but they’re operating in tough economic conditions. Many know current pension contributions won’t deliver financial security in retirement for most employees, yet without a clear, manageable framework it’s hard for businesses to act alone. We need the right conditions to help employers raise saving levels sustainably, with enough time to plan and budget for change.”
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