Over a Quarter of Large Businesses Report an Increase in Employees Opting Out of Pension Scheme Due to the Cost of Living Crisis

  • Personal Finance
  • 04.05.2023 09:50 am

The cost of living crisis has led to over a quarter (26%) of large businesses (employing 500 plus employees) –in the UK - reporting an increase in the number of employees opting out of the company pension scheme, according to research from workplace savings and pensions fintech, Cushon.  

The research – conducted as part of a new whitepaper to be released next month - also shows that over half of people (52%) have been forced to cut down on their non-essential spending due to the cost of living crisis.  

While at present the overall number of people opting out remains low, currently 5% of people have opted out of company pension schemes, there is widespread concern that if this trend continues, the UK could be facing a future savings crisis as these individuals approach retirement age. To ensure people have adequate savings for the retirement they want, Cushon is calling for employers to introduce financial education tools for employees to encourage people to keep saving despite the current financial pressures.  

More than eight in ten (84%) people with a workplace pension agree that greater financial education on how their pension works is important to them – echoing the need for employers to improve employee awareness of pensions.  

Similarly, employers can rethink their pension offering to provide additional support during the cost of living crisis and encourage people to continue to save. For example, this could mean introducing ‘salary sacrifice’ which reduces National Insurance (NI) contributions whilst ensuring that pensions contributions remain the same and take-home pay increases. Over six in ten (61%) people want their employer to offer salary sacrifice – a simple approach that could save someone earning £30,000 a year around £180 in NI while someone on a salary of £50,000 would save around £300.  

Raising employer contribution levels would also increase support for employees and encourage them to continue saving into their pension. These steps would also help ensure that the number of people opting-out of pensions does not increase further.   

Steve Watson, Director of Policy and Research at Cushon, explains: “Understandably, the cost of living crisis is forcing people to cut back on spending wherever they can and although pension opt-out rates remain relatively low, they are at risk of spiking the longer the crisis goes on as it becomes more likely that employees consider opting-out and putting their future financial health in jeopardy.  

“When finances are stretched, people look to reduce costs on the things they believe aren’t offering value for money. Unfortunately, for too many people, pensions fall into this category and this is down to a lack of understanding and engagement with employees.  

“Employers need to do more to ensure that not only are they educating employees about the advantages of their pension but also encouraging them to keep saving by raising the employer contribution – without steps such as this, the numbers of people opting-out of pensions could increase. 

“They can also introduce salary sacrifice, which is a great way to help their employees save money and make their pay go further. Initiatives such as this could prove pivotal in keeping the UK saving during the current crisis.” 

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