Over a quarter of large employers report increase in pension opt-outs

Over a quarter (26 per cent) of large businesses in the UK have reported an increase in the number of employees opting out of the company pension scheme, according to research from Cushon.

The survey found that over half of savers (52 per cent) have been forced to cut down on their non-essential spending due to the cost-of-living crisis, while 29 per cent have stopped saving money due to rising living costs.

Given these findings, Cushon urged employers to introduce financial education tools for employees to encourage people to keep saving despite the current financial pressures, revealing that more than eight in ten (84 per cent) people with a workplace pension agree that greater financial education on how their pension works is important to them.

Cushon suggested that employers could also rethink their pension offering to provide additional support during the cost-of-living crisis and encourage people to continue to save.

One example highlighted by the provider was salary sacrifice, which reduces national insurance (NI) contributions whilst ensuring that pensions contributions remain the same and take-home pay increases.

The research also found that over six in ten (61 per cent) people would like their employer to offer salary sacrifice, with Cushon estimating that this "simple approach" could save someone earning £30,000 a year around £180 in NI, while someone on a salary of £50,000 would save around £300.

Cushon also suggested that raising employer contribution levels could increase support for employees and encourage them to continue saving into their pension, helping to ensure that the number of people opting-out of pensions does not increase further.

Commenting on the findings, Cushon director of policy and research, Steve Watson, stated: “Understandably, the cost of living crisis is forcing people to cut back on spending wherever they can and although pension opt-out rates remain relatively low, they are at risk of spiking the longer the crisis goes on as it becomes more likely that employees consider opting-out and putting their future financial health in jeopardy.

“When finances are stretched, people look to reduce costs on the things they believe aren’t offering value for money. Unfortunately, for too many people, pensions fall into this category and this is down to a lack of understanding and engagement with employees.

“Employers need to do more to ensure that not only are they educating employees about the advantages of their pension but also encouraging them to keep saving by raising the employer contribution – without steps such as this, the numbers of people opting-out of pensions could increase.

“They can also introduce salary sacrifice, which is a great way to help their employees save money and make their pay go further. Initiatives such as this could prove pivotal in keeping the UK saving during the current crisis.”

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