Three ways to boost workplace savings

In July 2024, the Government launched phase 1 of its Pensions Investment Review, which focused on the scale of the workplace Defined Contribution (DC) market, considering value rather than costs in delivering member outcomes and encouraging investment into UK assets.

The Government is committed to the next phase of the Pensions Investment Review, which is due to explore how to improve pension outcomes, including assessing the level of savings needed for a comfortable retirement. Addressing pension adequacy will play a key role in their review.

This Government can build on the success of automatic enrolment, introduced in 2012, by creating a long-term plan which aims to have a positive impact on retirement outcomes and also generate investment to help finance growth which will shape UK’s pensions policy going forward.

Here are 3 steps you can take to boost your workplace savings benefits:

A salary or bonus sacrifice pension plan can reduce the National Insurance contributions payable. When employers lower an employee's gross salary, to offer such benefits, they can both save on National Insurance contributions (NICs) because of the reduced salary and potentially some of the NIC saving can be used to enhance the employee’s retirement savings.

From 6 April 2025, businesses face two significant changes in employer National Insurance contributions (NICs):

• Secondary class 1 NICs rate increase from 13.8% to 15%.
• The threshold for employer NICs will drop from £9,100 to £5,000.

Although the Government expects this change to produce an additional £25 billion annually, businesses with large payrolls, slim profit margins, or in lower-wage sectors, may find little relief from the increase in the annual employment allowance from £5,000 to £10,500.

Providing salary or bonus sacrifice for pension contributions and other employee perks including cycle-to-work schemes, electric vehicle incentives, or additional holiday buys, are a simple way for employers and employees to reduce the impact of these NIC changes.

From analysis of the employer schemes that we administer, around half are set up with contributions at the minimum level of 8% of qualifying earnings - including at least 3% from the employer. But some schemes do offer employer matching of employee pension contributions, with most capping this at 12% or below. Some schemes offer age related matching, providing additional support for employees approaching retirement, or tiered matching where matching is higher as employees make further increases to their additional contributions.

Half of the UK workforce is with employers that match contributions for some or all employees. But matching contribution models tend to benefit those already in a better financial position.

Larger companies are more likely to provide matched contributions to their employees. 47% of larger employers offer matched contributions to all employees, compared to only 23% of medium-sized companies and 18% of small ones. Similarly, individual company rules, which result in above-minimum contributions, are often only provided to employees in specific or more senior roles.

Broadening the scope for increased pension contributions could act as a simple but powerful incentive for employees. This will enhance their retirement benefits and help to provide additional financial security, boost morale and could promote staff retention.

The overall participation rate of all employees in Great Britain into a workplace pension was 80% (22.3 million) in 2023 rising from around 50% in 2012, when auto-enrolment was first introduced. Total annual workplace pension savings for eligible savers was £131.8 billion in 2023, a £43.2 billion real terms increase compared to 2012 (in 2023 earnings terms) - so it is working, but as the Pensions Investment Review recognises there is still further work needed by employers, employees and pension providers.

Automatic enrolment applies to employees who ordinarily work in the UK who:

• are aged between 22 and the State Pension age;
• earn over £10,000 a year, or reach weekly and monthly earnings thresholds;
• are not already part of a qualifying workplace pension scheme.

If an employee meets the eligibility criteria, a workplace pension should be set up for them automatically. However, some employees may not be eligible, for example, if an employee does not meet earnings threshold limits. However, those employees can choose to opt in to the pension scheme if they wish.

Qualifying earnings for the 2025/26 tax year are between £6,240 and £50,270. However, some employers may calculate minimum contributions on ‘pensionable earnings’.

Employers can also boost financial planning in the workplace, by providing access through payroll to other investments, such as ISAs - which further enhance the benefits package. They can also consider matching employee contributions to these investments as well.

In particular, this can be attractive for younger employees, potentially using a Lifetime ISA, to get on the housing ladder. The valuable support of salary sacrifice arrangements and providing employer contribution matching can provide real value to employees to support their financial wellness.

Ask your Fidelity contact or Relationship Director about our workplace savings and Invest@Work services.