The study found that those companies offering higher rates typically had staff who were salaried, higher earners, highly skilled and on long tenure, meaning those most benefiting from higher contribution rates are those who are already in a position of greater financial security.
Half of employees covered in the research worked for a company that matched contributions for some or all of their staff when they pay more than the minimum rate, and around a third worked for a company that offered this to all employees.
Where the company is selective, three in five said seniority was the determining factor behind contributing more than the minimum to just some employees.
Employers keen to see employees pay more
Nest Insight found that employers were pessimistic about the prospect of voluntarily increasing contribution rates, with the current economic climate, as well as inflexible legacy systems and complex pension provision being cited as barriers.
Nearly two-thirds of employers said they were unlikely to voluntarily change their approach in the next two to five years, rising to three-quarters among smaller employers.
There was, however, greater appetite for innovations that would allow employees to contribute more without any concomitant rise in employer contributions.
Two-thirds thought a salary sacrifice approach, in which tax savings could be added to employees’ contributions, was an appealing prospect, while half favoured an auto-escalation arrangement that would see employees commit to increasing pension contributions when their pay increases.
Just under half (four in 10) were intrigued by hybrid approaches, such as combining pensions with other forms of saving, such as a sidecar savings model along the lines recently trialled by Nest itself. Under these systems employees build up a pot of “liquid emergency savings” alongside their pensions.
Additionally, around a third of employers expressed openness to higher defaults with the option to opt down, where employees would begin at a higher rate but be able to choose to reduce it, rather than the usual approach that sees employees have to opt in to higher contribution rates.
Phillips continued: “Given the current economic context, it’s not surprising that employers are most interested in innovations that help their employees to contribute more without requiring higher contributions from themselves.
“This contrasts with the current policy debate around employer contributions, which focuses on rebalancing default minimum contribution rates, often calling for a move to an equal balance of 6 per cent and 6 per cent from the current 3 per cent employer and 5 per cent employee levels.”
Personal responsibility
Besides the lack of consideration for retirement adequacy modelling, Nest Insight’s research also showed a strong bias in favour of individual responsibility for retirement outcomes.
Sixty per cent of employers said employees were principally responsible for ensuring they have a financially secure retirement, compared with 20 per cent that said the government bore most responsibility, and 13 per cent saying they felt that companies themselves were chiefly responsible — figures in part explained by the expectation that most workers would have multiple jobs over their working life, minimising the impact of any individual employer’s approach.
