UK Workers Missing Out on £2 Billion of Pension Contributions, Study Finds

An analysis by insurance company Royal London has found that more than 3 million British workers are passing up approximately £2 billion ($2.53 billion) in employer pension contributions every year.

“Millions of workers are missing out on buy-one, get-one-free money from their employer in the form of matching pension contributions,” said Steve Webb, Royal London’s director of policy, in a statement. “At a time when money is tight for many people and pay rises may be limited, getting your employer to contribute more to your pension can be a very cost-effective strategy.”

Royal London researched the impact of workers missing out on matching contributions based on the number of people who work in larger firms, the levels of employer matching contributions available, and the estimated levels of take-up of matching contributions.

The insurance company said it focused mainly on large employers because those are the firms that are more likely to offer additional, or matching, contributions if an employee chooses to save more than the minimum.  

Royal London said that if an individual contributes £1 to a pension and receives the standard rate tax break, the cost to them is 80 pence.  However, if the employer matches the full £1 contribution, this means that an 80 pence investment by the worker would generate £2 in his or her pension plan.

The analysis also estimated that someone who earns an average salary who decides at age 40 to take full advantage of an additional 3% employer matched contribution would have an income in retirement nearly £3,500 per year higher than if they only contributed at the minimum level.  

“Much more needs to be done to make workers aware of the money their employer will add to their pension if they are willing to contribute at a slightly higher level,” said Webb. “Employees need to find out if their employer offers additional matching pension contributions and give serious consideration to increasing their contributions if they can afford to so.”

Royal London cited an example of how a company can help get more employees to take advantage of matching contributions. Financial services firm Nationwide offers a “generous” matching contribution for employees who saved more than the minimum, but only 10% of its workers took the offer. To increase participation, Nationwide changed its pension policy to having the maximum contribution the default for employees, and giving them the option to choose a lower contribution if they wanted. As a result, more than 80% of their workforce is taking advantage of the maximum employer match.

Royal London cited several large companies with particular matching options. Compass Group, a food, hospitality, and support services company, allows employees to choose to pay between 3% and 6% of their salary into their pension, and get a pound-for-pound match from the employer. At Intercontinental Hotel Group, most employees can make a contribution of 3%, 4%, or 5%, and the employer will add between one-and-a-half and four times as much, depending on how long the employee has been with the company.

Contribution rates at Royal Mail Group for employees with more than 12 months service, are 4%, 5%, and 6%, and the employer match is 7%, 8%, 9%, respectively;  the default after 12 months is 5% plus 8%. Employees of telecommunications company Vodafone can contribute 1%, 3%, 4%, and 5%, and receive an employer contribution of double this amount. Aerospace company Bae Systems has a “core” employee contribution of 4%, with the option to pay 5% or 6%; the employer pays 6%, 7%, and 8% respectively. Clothing retailer Next allows employees to choose between paying 3% or 5%, and the employer will provide a matching contribution.