Britain faces a ticking timebomb when it comes to inadequate retirement provisioning – that’s the opinion of Leeds-headquartered Workplace Pensions Direct following research conducted in association with YouGov.
The study found that only half (50%) of businesses across Britain are leveraging the salary sacrifice benefits available for workplace pensions.
This means that more than 15 million people across the country could be missing out on the ability to contribute an average of £204 extra into their pension every year – which for a 30-year-old planning to stop working at the age of 68, could mean a £30,500 difference to their retirement pot.
Alternatively, the financial savings could be used to strengthen a company’s net profits.
Further data analysis* suggests that up to 55% of Yorkshire businesses are overlooking some of the most basic ways to boost employee savings, without it costing a penny. The findings should therefore act as a stark jumpstart for the region’s businesses, believes WPD’s CEO Keith Humphrey, particularly given the magnitude of the country’s economic recovery efforts and the growing pensions gap faced by the UK’s ageing population.
Among the British businesses that haven’t adopted a salary sacrifice scheme for pensions, the most common reason is a lack of perceived benefit to employees (23%). 17% say they have never heard of it, and 14% perceive it to be too much hassle.
However, Workplace Pensions Direct has recently helped a 52-strong construction firm in South Yorkshire save £9,200 per year via a salary exchange scheme, and a West Yorkshire business services company with 525 employees has recorded annual savings of £58,000. The employers then have the options to use such savings to enhance colleagues’ pension contributions, invest them elsewhere, or simply boost their bottom line.
“While pensions are often overlooked as a ‘boring’ subject – nothing more than a ‘dirty word’ in some organisations – the ratio of people in retirement will have shifted from 6:1 in 1990, to 2:1 by 2030,” said Keith. “Add to this the fact that forecasted returns on pensions have fallen – meaning workers must now contribute 50% more to achieve the same predicted pay out, compared to a decade ago – and it’s no wonder that the World Economic Forum has highlighted this as the financial equivalent of climate change. The implications for health, social care and quality of life during retirement, are indescribable.
“But businesses can better support employees with their deferred income planning, as I like to call it,” continued Keith. “And it wouldn’t cost them an extra penny, if they leveraged the salary exchange methodology sanctioned by HMRC. With savvy Generation Zs particularly keen to maximise their savings potential, and the employment landscape notoriously competitive – particularly in sectors such as tech – now is the time to press reset on organisations’ pensions mindset. It’s an incredibly overlooked employment ‘perk’ that could give organisations the edge over other businesses vying for the same talent.”
“The encouraging thing to note from this research is that 50% of British companies are being extremely savvy when it comes to salary exchange for pensions, and of those who are, 71% are re-investing the money into enhanced retirement savings for employees,” continued Drew Donaldson, WPD’s technical and operations director.
“When drilling down into the data*, there was a distinct trend among the age of the financial decision maker within the company, with 60% of under 35s having rolled out a scheme, compared to only 41% of over 55s. Interestingly, it appeared that the age of the company could also be a deciding factor, with firms over 35 years old the most likely to have introduced such an initiative.
In terms of market sector, salary exchange schemes were most prevalent within the medical sector (75% adoption rate), followed by the creative and media industry (73%) and tech/telecoms (68%).