UK businesses going over and above on pensions

92% of businesses are already paying the minimum of 2% (measured as a percentage of employee salary) required by 2017, while 85% are contributing 3% or more as required by 2018. The sweet spot is currently 5%, by far the most popular level of employer contribution, and is paid by one in five (23%) businesses. Two thirds (68%) of companies are paying in at least this amount, if not more.

Despite positive signs that most employers are ahead of the game, personal contribution levels from employees are still lagging well behind. Nearly three-quarters (72%) of the 500 companies Aegon surveyed for the research say that fewer than half of their employees are personally topping up the workplace pension contributions they make as a business. The study does however reveal how businesses might be able to lift this proportion; by paying in more themselves.

Those businesses that only contribute a small amount, in the region of 1%, see on average 0-10% of their staff topping up. This average proportion jumps significantly to 20-30% of the workforce for businesses contributing 5%, and again to 30-40% for companies paying in over 10%. This ‘leading by example phenomenon’ suggests that higher contributions by employers has the effect of increasing the number of employees choosing to top up themselves.

Indeed the introduction of auto-enrolment, and the growing contributions made overall by businesses in the UK, could be one of the reasons why twice as many employers have seen personal contributions rise (44%), as those that have seen them fall (23%) over the last five years.

Angela Seymour-Jackson, Managing Director of Workplace Solutions at Aegon UK, said:

“Auto-enrolment has thrust workplace pensions into the spotlight more than ever before, and the DWP’s latest campaign to raise awareness amongst smaller employers will take this even further. But getting staff to save is just the first step. Contribution levels by both employers and employees need to increase if people are to achieve the lifestyle they want in retirement.

“It’s good to see employers are for the most part already contributing more than they are required to and most are seeing staff contribution levels rise a result. There appears to be a clear correlation between employer contribution and staff engagement, and employers have more power than ever before to emphasise the importance of solid pension contributions.”