Employers across the UK are increasingly concerned that financial pressure on households could lead employees to make short term decisions that affect long term retirement savings. New research suggests that rising living costs may be prompting workers to reduce or pause pension contributions as they focus on immediate financial demands.
The study from People’s Pension found that more than six in ten employers are worried that financial pressure could push employees to opt out of workplace pension schemes. A total of 62% said they believe financial strain may result in more staff leaving pension plans altogether.
Employers also expect some workers to lower their contributions. Almost two thirds of respondents, representing 61%, said they believe employees will reduce how much they save as they prioritise everyday living costs.
The research highlights the continued pressure facing households, with inflation remaining above 3% and many families still experiencing the lasting effects of higher food, energy and mortgage costs compared with levels seen before 2022.
Financial Pressure and Pension Engagement in The Workplace
Concern about pension contributions is particularly pronounced in certain business groups and regions. Employers at medium sized businesses are more likely to expect reductions in pension saving, with 72% predicting employees may contribute less.
Regional differences also emerged in the research. Employers in London reported similar expectations, with 72% anticipating reduced contributions, while the figure rises to 80% among employers in Yorkshire and Humberside.
However affordability is not the only factor shaping pension behaviour in the workplace. Many employers believe a lack of understanding about pensions also contributes to lower engagement with retirement saving.
Nearly six in ten employers, representing 59%, said employees do not fully understand the value of pensions as part of their overall reward package. More than half of employers, accounting for 52%, said staff are not fully engaged with the pension benefits available to them or may not be making the most of these schemes.
Communication also appears to be a challenge for some organisations. Almost half of employers, representing 49%, acknowledged that their organisation does not communicate or promote its workplace pension effectively.
Pressure on pension saving is also more visible in certain industries. Employers working in wholesale, retail and franchising reported higher levels of concern, with 68% saying employees are struggling to maintain contributions. In construction the figure was 64%, suggesting similar pressures within that sector.
Employer Responsibility for Financial Wellbeing and Retirement Planning
The concerns raised by employers come at a time when there is wider discussion about the adequacy of pension contributions. The current 8% minimum contribution level under auto enrolment is widely considered unlikely to deliver the retirement income many workers expect. As a result, maintaining consistent contributions over time is viewed as an important factor in building long term financial security.
Despite the challenges facing both organisations and employees, many employers say they recognise a responsibility to support financial wellbeing. More than four in five SME decision makers, representing 82%, said they feel responsible for the overall financial wellbeing of their employees.
At the same time three quarters of employers, accounting for 75%, said rising business costs limit how much they can increase wages. This creates a situation where employers recognise employee needs while also facing their own financial constraints.
When asked what could improve engagement with pensions, employers most often highlighted clearer communication and education about retirement saving. A total of 45% said better information about pensions would help improve engagement, while 40% said additional support for financial wellbeing and retirement planning would make a difference.
Stuart Reid, Distribution Director at People’s Pension, said that while workplace pensions remain one of the most effective ways to support long-term financial security, engagement cannot be taken for granted.
“Employers are navigating a period where both businesses and households are under sustained financial pressure, and there is understandable concern about the impact this may have on long-term saving behaviour. What this research highlights is that affordability and understanding are closely linked.
“Even short breaks or reductions in pension contributions can have a disproportionate effect over time. When saving stops, people miss out not only on their own contributions but on employer payments and years of compounded growth – losses that are hard to rebuild. We see the long-term consequences of interrupted saving in the gender pension gap, where missing years due to childbirth and caring responsibilities have resulted in significantly lower retirement outcomes.”