The traditional source of private pension support in the UK was a generous employer defined benefit (DB) pension scheme. But those unlimited-cost pension promises proved unaffordable and we have now moved to a system of defined contribution (DC) pensions for most employees, where the costs can be pre-planned.
After all, pension provision costs are part of the overall remuneration package, so if employers pay more into pensions there will be less left for salaries.
Forcing employers to do more is not necessarily what staff need, and employers are already helping with retirement savings as auto-enrolment rolls out to all employees.
As it stands, employers select a pension scheme for their workforce and ensure that money is deducted from their pay without the employee having to make complicated arrangements themselves. Also, minimum contributions are increasing.
Rather than just forcing employers to pay more into their employees’ pensions, employees should be encouraged to make their own decisions, with adequate information and guidance or advice.
I am in favour of auto-escalation, where staff are encouraged to put part of any pay increases into additional pension contributions.
Employers could also improve their employees’ retirement by facilitating more flexible working in later life, so that retirement happens gradually, rather than suddenly on one day. This would give workers a higher life-time income and keep them engaged and active for longer, placing less strain on pensions alone for later-life support.
At the heart of this new approach, it is important that employers provide financial education, financial planning and even advice sessions to help their staff understand how to plan for their retirement.
Also, offering employees other forms of saving alongside pensions, perhaps for later-life care needs, debt repayment or house purchase, may be preferable to just increasing pension contributions.
Ros Altmann is minister for pensions.
Note: This piece was written before Altmann’s appointment as minister for pensions.