Supporting employees with their pension contributions

What can employers do to help employees keep up their company pension contributions?

Many UK families are having to rethink their spending, cut back on energy usage and essential outgoings due to the cost of living and rise in fuel prices, however a recent survey conducted by pension provider Penfold, has revealed that pension opt-out rates had risen in July by 27%, with more employees choosing to increase their monthly take home pay in lieu of saving for retirement.

Opt-out rates were around 10% at the start of 2022, but Penfold’s research shows that the figure is now closer to 13%. But is this a surprise? It has been well documented that UK inflation is outstripping salary increases.  As well as this, interest rates continue to rise and with the Bank of England likely to implement more, the tightening of purse strings looks set to continue.

However, it is important employees do not stop contributing to their workplace pension scheme for too long, as they may miss the benefits of compounding, which is vital for an adequate pension pot to be built up over time. Compounding works by allowing small amounts of money, like regular contributions into a pension scheme, to grow into large amounts over time. Importantly the growth in value of these contributions is re-invested, creating a snowball effect.

But what can employers do to help avoid opt outs, through this period?

• Absorb employee contributions – Perhaps the most straightforward option, however realistically an employer may not be able to offer this due to the cost implications to the business
• Switch minimum contributions – under all auto-enrolment certifications, the employee inputs the higher percentage, for example 5% employee and 3% employer. An option could be to switch this (temporarily or on a permanent basis), so the higher amount is being paid by the employer
• Review your pension offering – A great way to encourage continued membership is to incentivise employees to be part of the scheme. This can be achieved by offering higher employer contributions which kick in after a qualifying length of service (2 years for example) or matching contributions up to a certain amount
• Contribution holiday – Instead of opting-out all together and not being automatically re-enrolled for another 2/3 years, an employee can instead take a pension holiday, where they can stop contributions for a limited number of months. This could avoid a longer than needed loss in pension growth
• Remember to promote the scheme – As many employees will not access their pension for decades, it is easy for the benefit to be forgotten about. Remember to communicate your pension scheme where possible, members are receiving additional remuneration for being part of the scheme, which they would not receive otherwise
• Financial wellbeing tips – To help support employees further, financial wellbeing sessions can be arranged which can provide employees with the tools to help with budgeting and in turn avoid the last resort option of opting out of the pension scheme

Because of their lack of immediacy when compared with other benefits such as extended holiday leave or sabbaticals, pensions may seem less attractive. However, a pension plays a pivotal part in a staff member’s retirement strategy, and they need to be promoted regularly. This will ensure their importance is understood and if a company can discuss pensions in an even more positive light, through enhanced contributions for example, opt-outs should be more readily avoided.

If you would like any consulting support regarding your pension contributions or engagement strategy, please do not hesitate to contact teambc@connorbroadley.co.uk