Employers recognise pension provision shortfalls, research shows

Employers are planning to address retirement adequacy over the next two years as they are concerned about their staff’s pension prospects, according to WTW.

The consultancy group reported that just a quarter of employers it surveyed believed the defined contribution (DC) provision they offered would enable their employees to have a comfortable retirement.

Most companies (82%) said they wanted to go beyond mere compliance with auto-enrolment rules, with just over half (51%) saying they wanted to “specifically address retirement adequacy in the next two years”, WTW found.

The survey reflects previous research from WTW that found almost a third of employees (31%) did not think they would be able to retire before age 70. Most (79%) also recognised that they were not saving enough for their retirement.

Helen Holman, head of DC consulting at WTW, said: “The focus on retirement adequacy is increasing, as more employers are looking to expand support for employee decision-making and financial wellbeing. Employers are taking various actions to address adequacy, including enhancing guidance services, improving investment strategies, and analysing retirement outcomes for different groups.

“However, despite these growing concerns, few employers have secured additional funding to improve plan generosity, highlighting the need for better investment efficiency and targeted communication.”

Contribution levels

The consultancy also reiterated its call for employers to increase their default contribution levels for new staff to help improve pension adequacy. Most employers (86%) enrol staff at the statutory minimum, WTW said.

While many organisations and commentators have called for the minimum auto-enrolment contribution level to be raised gradually towards 12%, the government has yet to explore this.

In a speech last week, Emma Reynolds, the pensions minister, said she was prioritising investment changes in the first phase of the Pensions Review. Any exploration of expanding auto-enrolment would come later.

As reported by the Financial Times, Reynolds said: “I’m very clear that to have the discussion about contribution levels and security in retirement, we need to have confidence that our pension system is delivering a fair outcome for savers, as well as employers and taxpayers.”

David Piltz, CEO of Gallagher’s benefits and HR consulting division, highlighted that the minimum contribution level under automatic enrolment would likely “fall short of many people’s retirement expectations”.

“The government has a role to play here, through incentivising strong scheme design,” Piltz said. “However, employers can also be proactive.”

As part of Pension Awareness Week, he called for employers to look at internal communications around employee benefits and ensure that staff can “access information about pensions and retirement planning in a clear and targeted way”.

“The reality is that we live in an ageing society and as the cost of the state pension rises, making retirement planning accessible and increasing engagement is crucial for securing a positive retirement,” Piltz said.