UK employers fear that the number of employees opting out of company pension schemes is set to rise in response to the cost-of-living crisis, according to research from Cushon, the fintech workplace pension and savings provider.

Almost half of businesses (45%) with more than 500 employees report that some people are already leaving pension schemes whilst four in ten (40%) also report that some employees are reducing their contributions in order to survive the cost of living crisis.

Such moves are putting financial futures at increased risk and could lead to longer-term financial struggles. 

 

Pension contributions will reduce

Although the number of employees currently opting-out of pensions schemes is relatively low – with Cushon research showing just one in ten (11%) are considering doing this – the risk is that people will increasingly be forced to cut pension contributions as increased living costs continue to be felt. 

Nearly eight in ten (77%) people say they are planning to reduce outgoings to get through the current crisis while seven in ten (67%) feel anxious about their finances at present. 

Although the recently announced energy bill cap will help, households remain under pressure as energy costs are still set to rise by £529 from 1st October and inflation currently sitting at over 10 percent.

 

What about the mini-budget?

At the same time, there have been worrying media headlines about the security of people’s pensions following market reactions to the government’s mini-budget. While this mainly impacts defined benefit pension schemes, this is not necessarily being made clear and therefore risks provoking fears over the security of pension pots which could lead more people to reduce or cut contributions.  

 

Auto-enrolment of workplace savings schemes would boost effectiveness but regulatory change is needed

More widespread workplace savings schemes will be vital to support employees and ensure they are not forced to cut back on pensions contributions. Although some employers do offer workplace savings schemes, there are still too many who do not. Also, without regulatory changes it is difficult for businesses to automatically enroll employees into these schemes which can make them less effective.

Auto-enrolling employees in workplace savings schemes means they would need to actively opt out if they didn’t want to save, rather than having to actively opt in. Even when asked during the current cost of living crisis, six in ten employees (60%) say they would continue to contribute to a workplace savings scheme if they were automatically enrolled, increasing to two-thirds of employees (66%) if the employer also contributes.

 

Steve Watson, Head of Policy & Research at Cushon, says:

“Even with the recently announced cap on energy bills, millions of people are still facing impossible financial choices in the current crisis. People urgently need more support to ensure that stopping or reducing contributions is a last resort and a potential retirement savings crisis is avoided.

“The recent reporting around the Bank of England’s financial intervention in the bond markets has not helped either. By stoking fears that the pensions market is unstable, this risks misleading savers into making financial decisions which will hurt them in both the short and long term.

“There are many things employers can do to help employees build a financial buffer so they’re better able to weather the storm. Being able to offer generous and effective workplace savings schemes would ensure that people can financially plan for the future whilst having enough to get through the current crisis. However, without regulatory change, employers aren’t able to auto-enrol employees onto these schemes which is reducing their effectiveness and ultimately reducing people’s ability to build up a savings buffer. By providing additional support, employers can help to ensure that cutting pension contributions becomes a last resort and people’s financial futures remain secure.”

 

 

 

 

 

Amelia Brand
Amelia Brand

Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.