As the cost-of-living crisis gathers pace, financial pressure is forcing many to cut costs wherever they can. The fear is that this is spilling over to savings and pensions, storing up issues for the future, argues Steve Watson.

Our recent research indicates that almost half of businesses (45%) with more than 500 employees report that some are already leaving pension schemes, whilst four in ten (40%) have seen employees reduce their contributions to survive the cost-of-living crisis.

Of course, in the current financial landscape, cutting back on long-term savings is understandable, but more needs to be done to ensure this is the last resort for employees.

For many of us, our pension is perhaps one of the biggest assets we will own and our main financial safety net for retirement. But currently, 5 million people are approaching retirement are at risk of not having ‘adequate’ pension income and this could rise as people are forced to cut contributions. This suggests that the UK is at risk of sleepwalking into retirement poverty.

Of course, with many household budgets stretched to breaking point, some may simply be unable to continue saving for retirement when they are struggling to make ends meet in the short term. They need more support to ensure they understand the impact of reducing contributions and that this becomes a last resort. This is where the industry comes in.

The first step must be to get people more engaged.

The truth is there is a worrying lack of understanding when it comes to pensions. The reason for this is that engagement is incredibly low because many are disillusioned by pensions. When it comes to receiving your pension, a benefit statement still usually arrives in the post annually which makes it easy to ignore, with the jargon used on this statement often impenetrable. This industry-wide use of technical jargon and its aversion to technology means that many find pensions difficult to understand and engage with.

People engage with things they have an affinity for. Our research shows that 62 percent of employees would engage more with their pension if they knew it was making a positive impact on climate change. This perception is the main driver of our Net Zero pension scheme, the world’s first carbon-neutral pension. Our investment strategy, our approach to technology, and use of simple language aligns with our members’ personal beliefs and values. And this allows them to engage more naturally with their pension understand the impact of reducing contributions, and ultimately understand how their future may be impacted.

The role of employers

While it is up to the industry to drive engagement, in the face of falling contributions employers also have a role to play in offering alternative saving options. During the cost-of-living crisis, there is a clear desire amongst employees for more support from employers. Our research shows that almost half (47%) of businesses say that their employees want support schemes introduced.

There are several different options that employers could consider when supporting staff. One of which is pensions redirect, which allows some of employers’ and employees’ pension contributions to be directed into accessible savings. Salary sacrifice is also a viable option – this allows an employee to agree to reduce their salary by an amount equal to their pension contributions and their employer will then pay their total pension contributions which saves both the employee and the employer money in lower national insurance contributions – on average £200 per person each year.

Employers may also look to introduce workplace savings schemes – enabling payments to be deducted directly from employee pay and funnelled into a savings account that employees can access when needed – helping them build a rainy-day fund.

A saving scheme

Our workplace saving scheme for student workers at the University of Lincoln is currently helping students who fall outside of pension auto-enrolment. While auto-enrolment has been a success, it does not capture everyone. This includes under 22s and those who do not meet the minimum earnings threshold, both of which apply to many student workers. Student employees working for the university are auto-enrolled into a savings pot, provided by us from where they can choose to move to an ISA of their choice.

The scheme defaults them to a 3 percent of salary contribution, with the university contributing 6 percent. But they can choose to pay in more and in return the university will also increase their contribution up to a maximum of 8 percent. Students also have the option to opt-out, and, if they do meet the auto-enrolment threshold, they can be switched automatically to the university’s pension scheme.

So far, we have seen encouraging results, with one student employee able to save £5,000 over the academic year. The scheme has also seen less than one in ten (8%) opting out, and engagement is high with around four in ten using the Cushon app to check on savings every week. Low opt-out rates get people into the habit of saving, so our work with the University of Lincoln demonstrates how employers can both engage employees with later life saving and help them build a financial buffer for the future.

What does the future look like?

We cannot allow the cost-of-living crisis to jeopardise later-life savings. As some people struggle to maintain their savings contributions, the industry has a role to play in driving engagement and educating savers on the consequences of reducing or stopping contributions. We must become an industry built for the 21st Century and that is about embracing new digital forms of operating. We must also use language accessible to everyone and remember that people engage with things that they have a connection to.

But we also cannot ignore the role of employers. Employers need to think about introducing initiatives such as salary sacrifice, which puts extra money into employees’ pockets today, and redirects pensions into workplace savings which helps employees build a financial buffer for the future. It is a two-pronged approach – helping with costs today whilst also getting employees saving for a more secure financial future. We need to prevent the cost of living crisis from impacting their future as well as their present.





Steve is a strategic leader and practitioner with over 25 years employee benefits experience gained in the UK and internationally. As a Flexible Benefits and DC Pensions specialist, he has successfully transitioned a transactional sales proposition to an embedded value model which became market leading.