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Research by Royal London highlights two key factors shaping workplace pensions: government policy and how employees are saving. The 2025 budget introduced reforms to make pensions fairer and more sustainable, though the full impact remains uncertain.
The pension adequacy gap
Research indicates that millions of employees continue to under-save for retirement.
- Almost half (46 per cent) of employees contribute less than 4 per cent
- Around 15 million people are not on track for a comfortable retirement
- Engagement is improving, with 73 per cent checking their pension annually
- Contribution levels remain low and changes to salary sacrifice may influence future behaviour
Salary sacrifice – a changing landscape
Salary sacrifice offers tax-efficient contributions, benefiting employees and employers through national insurance (NI) savings. From April 2029, the NI exemption will only apply to the first £2,000 of salary-sacrificed contributions per year. Contributions above that will attract NI for both parties.
For most basic-rate taxpayers, the impact will be minimal. For higher earners or employees receiving pension matching, the effect could be significant.
Employers may need to:
- Review benefit structures to maintain competitiveness
- Communicate early so employees understand the impact on take-home pay
- Explore alternatives, such as enhanced contributions or flexible benefits
Additional budget changes
Frozen tax thresholds until 2031 and small pot consolidation will affect workplace schemes. These changes aim to modernise pensions but could make it harder for employees already struggling to navigate their options.
An employer opportunity
Employers can lead on engagement. Clear communication, financial education and innovative reward strategies will support employees and help close the adequacy gap, building resilience and securing better retirement outcomes.