Employers contribute more than is required to staff pension pots

A new CIPD survey found that while the legal minimum requirement is that employers and employees contribute one per cent each, the average employer has increased this number to 5.6 per cent of salary.

Although the percentage drops to 4.5 in the private sector, it’s still encouraging to see that it is substantially higher than the minimum amount.

CIPD’s performance and reward adviser Charles Cotton, said: “So far, pension automatic enrolment has been a success. It’s been the wake-up call we needed to get the UK saving for the future. Employers are in many cases going above and beyond the requirements and the majority of workers have opted to stay in the scheme. 

“However, in the coming months, we need to keep a close eye on the number of workers leaving the pension scheme and what can be done to encourage them to stay. We also need to explore ways that we can increase the amount of money going into saving for retirement. 

“To do this, it’s essential that employees are encouraged to look at their employer’s pension contribution as well as their take home pay when thinking about their total earnings. This is particularly important at a time when many people are experiencing either wage freezes or subdued wage growth.” 

While many businesses already have automatic enrolment in place, many thousands more have yet to enrol. Among those who report that they have yet to implement auto-enrolment (28 per cent of those surveyed, mostly small and medium-sized employers), 48 per cent anticipate that they will have to limit future pay growth to pay for it while 19 per cent forecast reducing hiring or cutting jobs. 

“It’s concerning that many micro, small and medium-sized employers think that they may have to cut or restrict salary growth or reduce hiring to pay for automatic enrolment. Our survey last year found many organisations predicting negative consequences in terms of employment and pay due to the pension changes, and these do not appear to have materialised. 

“To mitigate any possible negative consequences, firms need to plan in advance, look at the cost implications, examine the potential responses and evaluate which ones meet the needs of the business, its employees and workers.”

By Shané Schutte

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