Rising wage growth is expected to have a positive impact on pension contributions, although industry experts have raised broader concerns around potential pension opt outs and the impact of changing working patterns.

The latest figures from the Office for National Statistics (ONS) revealed an increase in average earnings, excluding & including bonuses, from 6.1 per cent to 6.4 per cent.

Commenting on the update, Barnett Waddingham partner and head of defined contribution (DC), Mark Futcher, suggested that there could be a "silver lining" to this, noting that as wages rise, so too do pension contributions from both employees and employers.

"While many people have leant on their savings to keep up with the rising cost-of-living, there should be some relief that their often-unconsidered pension pot is rising without them noticing," he stated.

However, Futcher stated that "we cannot expect people to be much heartened by better long-term savings when their short-term is still struggling", noting that many people are faced with a real-term rise in costs of bills, food, and fuel.

"This is leading to concerning financial decisions, including more people spending on their credit card, cutting back on their private pension, and even pausing their workplace pension contributions," he continued.

"Employers and trustees alike have a role to play in supporting people through this period of volatility. Good trustees must be communicating regularly and clearly with savers about their options; recent guidance from The Pensions Regulator mandates an especially strong focus on those close to retirement."

Futcher also argued that good employers have "even more power", stressing that while communication is key, they can also offer tangible support to their staff in the form of increased pension contributions, private health insurance, and mental health support.

More broadly, the ONS update showed a continued fall in labour market participation amongst 50-64 year olds since the pandemic, with Aegon head of pensions, Kate Smith, pointing out that whilst the latest figures showed a decrease in the economically inactive rate, this remained "worryingly high compared to pre-pandemic levels".

Smith continued: “"The cost-of-living crisis appears to be keeping some of this group in work longer, possibly moving into part-time employment instead of fully retiring altogether, with retirement being cited by the fewest number since March 2021.

"The economically inactive rate is still 1.3 per cent percentage points higher than before the pandemic, so it appears the government may face an uphill struggle in getting more people back in work."

In light of changing working patterns, Smith emphasised the need to ensure that the pensions system remains "fit for the 21st century", suggesting that over 50s could be allowed to move in and out of work as well as change their working hours, living on a combination of earned income and pensions income.

"It’s important that barriers are removed which stop them from doing this in order to retain their skills and help the UK’s growth and resilience," she added, pointing out specific concerns around the money pension purchase annual allowance (MPAA).

"Once people access their pension income flexibly, currently from age 55, the amount they can save tax efficiently drops dramatically from a maximum of £40,000 to £4,000 a year, effectively preventing people from rebuilding their pensions," she explained.

"It’s time this draconian rule was changed to reflect modern working patterns and encourage more over 50s to return to work.”

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