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Company payments to UK staff pensions have fallen by 16%, at 30%, or after adjusting for inflation, worrying whether companies are doing enough to support employees in retirement.
UK companies spent £36 billion on employee pension contributions in September 2024, falling from the peak of £43 billion at the same time three years ago or from £52 billion after adjusting for inflation, according to National Statistics figures issued this month.
The decline in contribution was driven by a rapid increase in the UK government’s bond yields. This has improved the funding level for predefined benefits plans, which pay fixed pensions based on salary, allowing businesses to reduce their deficit reduction payments.
The figure was expected to increase the amount staff and businesses automatically pay for workplace retirement plans as the government delayed review of pension adequacy.
The government also announced it would loosen rules that would allow businesses to access a portion of the £1600 billion.
“If the era of large employer contributions is over, in actual terms, much less will be in the entire pension. We are saving the issues tomorrow,” said Sir Steve Webb, a consultant LCP partner and first pension minister.
“We can see why employers who face such a large, unstable cost, don’t want to go there again… Actions against legal (annual) minimums are even more important,” he added.
The company paid £14 billion to the benefits pension scheme defined between September and September. Three years ago, that figure was £27 billion, or £32 billion, after adjusting for inflation.
Many DB schemes have created a huge deficit as low interest rate periods led to an increase in the value of their liabilities.
However, in recent years, higher government bond yields have led to higher funding levels. According to ONS data, approximately 90% of the company’s decline in payments to the DB scheme was caused by a lower contribution of the deficit.
Over the three years, employer payments rose from £15 billion to £220 billion in payments to a defined contribution plan that offers pensions that rely on investment performance. Most private sector workers in the UK have DC pensions.
According to Bina Mistry, head of corporate pension consulting at WTW, the increase in the number of employees paying for the DC scheme was “mainly because of the increased contribution.” “In the past three years, there has been no meaningful change in business offerings, on average.”
Under current UK regulations regarding DC pensions, workers are automatically registered and must pay at least 5% of their salary plus a minimum of 3% from their employer.
A survey by WTW found that large companies tend to pay more, with an average lowest contribution of around 7%.
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In contrast, employer contributions in local government pension plans in England and Wales range from 15-27%.
The Pension and Lifetime Savings Association trade group estimates that a quarter of households with DC pensions have not saved enough to have a minimum of £22,400 a year.
Zoe Alexander, PLSA Director of Policy and Advocacy, said:
In Australia, employers must pay at least 12% of their salary this summer into the scheme, but recent law in Ireland requires a minimum contribution rate of 12%, splitting 50/50 between employers and employees. In Italy, employers must contribute at least 7%.
