Employer contributions to workplace pensions have seen a significant increase over the past decade, according to a new report by the Institute for Fiscal Studies (IFS). Following a low of 3.4% of total earnings in 2012, average employer contributions for private sector employees reached 5.1% by 2024.
This upward trend is attributed to the introduction of automatic enrolment in 2012, which mandates employers to enrol eligible employees into a workplace pension and contribute a minimum of 3% of their salary. The policy also led to a substantial rise in participation, with overall workplace pension participation among eligible private sector employees climbing from just over 40% in 2012 to 89% in 2024.
Despite these positive developments, concerns persist regarding the adequacy of current pension savings. An interim report from the government's Pension Commission indicates that 15 million working-age individuals are undersaving for retirement. The Commission is currently exploring policy options to boost pension saving, with a full report expected in early 2027.
Potential changes under consideration include increasing minimum contributions from both employees and employers, lowering the minimum enrolment age from 22 to 18, and removing the lower earnings limit of £6,240 so contributions are calculated from the first pound earned. The IFS report notes that higher contributions could lead to lower take-home pay for employees and increased costs for employers, particularly impacting low earners and sectors like accommodation and food services.