Research conducted by Workplace Pensions Direct (WPD) and YouGov, has found that only half of British businesses (50%) are leveraging the salary sacrifice benefits available for workplace pensions.
This means that more than 15 million people could be missing out on the ability to contribute (on average) a further £204 into their pension every year – which for a 30-year-old planning to stop working at the age of 68, could mean a £30,500 difference to their retirement savings.
The findings should act as a stark jumpstart for British firms, believes WPD’s CEO Keith Humphrey, particularly given the pensions timebomb that the country’s ageing population is facing.
The research found that of the 44% of British businesses that don’t currently leverage the benefits of salary exchange for pensions – and the 7% of respondents who didn’t know whether they do or not, despite them holding financial decision-making responsibilities – the primary reason is a lack of perceived benefit to employees (23%). 17% also admit to having never heard of it, and 14% perceive it as too much hassle.
However, Workplace Pensions Direct has recently helped a 52-strong construction firm save £9,200 per year via a salary exchange scheme, and a business services company with 525 employees has recorded annual savings of £58,000. The employers then have the options to use such savings to enhance colleagues’ pension contributions, invest them elsewhere, or simply use them to strengthen their net profits.
“While pensions are often overlooked as a ‘boring’ subject – nothing more than a ‘dirty word’ in some organisations – the ratio of people in retirement will have shifted from 6:1 in 1990, to 2:1 by 2030,” said Keith. “Add to this the fact that forecasted returns on pensions have fallen – meaning workers must now contribute 50% more to achieve the same predicted pay out, compared to a decade ago – and it’s no wonder that the World Economic Forum has highlighted this as the financial equivalent of climate change. The implications for health, social care and quality of life during retirement, are indescribable.
“But businesses can better support employees with their deferred income planning, as I like to call it,” continued Keith. “And it wouldn’t cost them an extra penny, if they leveraged the salary exchange methodology sanctioned by HMRC. With savvy Generation Zs particularly keen to maximise their savings potential, and the employment landscape notoriously competitive – particularly in sectors such as tech – now is the time to press reset on organisations’ pensions mindset. It’s an incredibly overlooked employment ‘perk’ that could give organisations the edge over other businesses vying for the same talent.”
“The encouraging thing to note from this research is that 50% of British businesses are being extremely savvy when it comes to salary exchange for pensions, and of those who are, 71% are re-investing the money into enhanced retirement savings for employees,” continued Drew Donaldson, WPD’s technical and operations director.
When drilling down into the data*, there was a distinct trend among the age of the financial decision maker within the business, with 60% of under 35s having rolled out a scheme, compared to only 41% of over 55s. Interestingly, it appeared that the age of the company could also be a deciding factor, with firms over 35 years old the most likely to have introduced such an initiative (57%).
In terms of market sector, salary exchange schemes were most prevalent within the medical sector (75% adoption rate), followed by the creative and media industry (73%) and tech/telecoms (68%).
A full report on the findings can be accessed at www.workplacepensionsdirect.co.uk/salary-sacrifice-pensions-yougov-findings/.
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 258 adults. Fieldwork was undertaken between 20th – 22nd April 2021. The survey was carried out online. The figures have been weighted and are representative of British business size.
*Where more granular trends have been reported – relating to market sector, age of the company or age of the decision maker – the sample size is smaller (<50 respondents for this cross break). Such trends are therefore only observed and may not be statistically significant.